<  r  V 


•  '^/ 


'■^^ 


^ 


*» 


<f'^ 


t 


HIS 


BANK  OF  ENGLAND. 


A  Comprehensive  Account   of  its    Origin,  Foundation,  Rise,  Progress, 
Times  and  Traditions,  Manner  of  Conducting  Business, 
its  Officers  and  Offices,  and  a  full  History 
of  the  Bank  and  its  entire  Work- 
ing and  Management. 


B  Y 


JOSEPH   HUME  FRANCIS. 


THE  FIRST  COMPLETE  HISTORY  OF  THE  WORLD'S  GREATEST  FINANCIAL 
INSTITUTION  EVER  WRITTEN. 


CHICAGO,  ILLINOIS: 
EUCLID    PUBLISHING  COMPANY. 


f^^ 


S.  1^.  COZENS  &  CO.,  Publishers, 

r  /  831  Arch  Street,  PHILADELPHIA. 


delphia  Daily  Times  and  the  Baltimore  Telegram,  speaking  from  their  peni 
acquaintance  with  the  author  of  this  book,  highly  commend  his  ability  to  wrA 
and  say  that  in  point  of  detail  of  fa<5ls  and  incidents,  and  the  fixing  of  da*-s,  i/ 


HIS 


BANK  OF  ENGLAND, 


A  Comprehensive  Account  of  its   Origin,  Foundation,  Rise,  Progress, 
Times  and  Traditions,  Manner  of  Conducting  Business, 
its  Officers  and  Offices,  and  a  full  History 
of  the  Bank  and  its  entire  Work- 
ing and  Management. 


BY 


JOSEPH   HUME  FRANCIS. 


THE  FIRST  COMPLETE  HISTORY  OF  THE  WORLD'S  GREATEST  FINANCIAL 
INSTITUTION  EVER  WRITTEN. 


CHICAGO,  ILLINOIS: 
EUCLID   PUBLISHING  COMPANY. 

1888. 


y 


Entered  according  to  Act  of  Congress,  in  the  year  18S8,  by  the 

Euclid  Publishing  Company, 

In  the  office  of  the  Librarian  of  Congress,  at 

Washington,  D.  C. 


Pre«!  of  E.  Rul)Ovits  .'c  Hro.,  Chicago. 


J 


'J 


/■/■^ 


TO 


HON.  WM.  N.  TRENHOLM, 


Comptroller  of  the  Currency  of  the  United  States, 


History  of  the  Bank  of  England 


IS, 


H' 


WITH    HIS    KIND    PER^[ISSI0N, 


MOST  RESPECTFULLY  DEDICATED 


BY  The  Author. 


388478 


P^epACe. 


Custom,  which  is  as  arbitrary  as  fashion,  renders  it 
necessary  that  this  volume  should  be  prefaced  by  the 
author. 

This  history  is  presented  with  the  hope  that  it  may 
impart  useful  knowledge  regarding  the  life  of  the  greatest 
monetary  establishment  in  the  world  —  something  mea- 
gerly  and  imperfectly  understood. 

The  chief  merit  claimed  for  this  work  is  that  of  its 
being  an  extensive  collection  of  facts  connected  with  the 
history  of  the  Bank  of  England,  and  of  its  foundation, 
rise  and  working  and  general  management.  Other  sub- 
jects germane  to  banking  and  the  Bank  of  England  are 
touched  upon.  Every  known  source  of  information  has 
been  consulted,  and  in  collecting  and  arranging  the  facts 
for  the  first  complete  history  of  the  Bank  of  England 
only  matters  of  interest  and  value  have  been  treated,  al- 
though we  have  in  hand  and  have  had  the  benefit  of 
material  extending  over  many  centuries. 

A  rich  store  of  knowledge  may  be  obtained  from 
books,  but  there  are  two  entirely  opposite  methods  of 
giving  knowledge.  The  first  is  that  which  enters  into 
extensive  detail,  and  repels  and  confuses  the  average 
reader  with  scientific  phraseology,  meaningless  tables  and 


Vi  HISTORY    OF   THE    BANK    OF    ENGLAND. 

figures,  and  verbose  description.  The  second  is  that 
which  seeks,  by  simplicity  and  conciseness,  to  make 
knowledge  attractive,  entertaining  and  instructive.  The 
latter  is  the  method  adopted  in  this  volume.  The  aim  has 
been  to  explain  and  elucidate  all  matters  of  real  interest 
connected  with  the  bank  and  its  history. 

We  wish  in  this  connection  to  thank  several  officials 
and  employees  of  the  Bank  of  England  for  courtesies 
extended,  and  also  for  placing  at  our  disposal  all  informa- 
tion desired. 

The  Author. 

Chicago,  111.,  December  1,  1888. 


Conye^TS' 


Chapter  I. 


Pages. 


ORIGIN  OF  AND  FIRST  BANKERS  IN  THE  WORLD.— Rank 
First  Mentioned  in  the  Bible  —  Money  Changers  in  the  Jewish 
Temple — Origin  of  the  Word  Bank  —  People  who  Invented  Bank- 
ing— First  Bank  in  luirope — All  the  Early  Banks  in  Europe — First 
Bank  in  London  —  How  Bills  of  Exchange  Originated- — First 
Funding  System  —  First  Permanent  National  Debt  —  Bankers  of 
Greece  and  Rome — High  Rates  of  Interest — Origin  of  Modern 
Banking  —  Goldsmiths  as  Bankers  in  London  —  English  Country 
Bankers  —  Primitive  Financial  Methods  —  Necessity  for  Money — 
Fundamental  Nature  of  Money — What  Ancients  Used  for  Money 
— When  Gold  and  Silver  were  First  Coined-^Invention  of  Money 
— Money  Made  of  Iron,  Wood,  Shells,  Salt,  Brass  and  Tin  Current 
— Origin  of  Various  Coins .    13-29 

Chapter  II. 

DUTIES  AND  USES  OF  BANKS  AND  BANKERS.— What  is  a 
Banker? — First  Bank  of  Deposit  —  Interest  from  Borrowers — A 
Bank  in  its  Simplest  Form — How  Profits  are  Derived — How  to 
Pay  Interest  on  Deposits — Security  Against  Fraud — Safest  Way  of 
Loaning  Deposits — Securities  Prudent  Bankers  Avoid — The  Power 
of  Credit — Keeping  Deposits  on  Hand — The  Many  Uses  of  Banks 
— William  E.  Gladstone  on  Credit — Banks  of  Issue  and  Banks  of 
Deposit — Advantages  of  Combining  a  System  of  Lending  Money 
with  that  of  Receiving  It  —  Origin  of  English  Pounds,  Shillings, 
Pence,  Guineas  and  Sovereigns — Thompson  Hankey,  an  Ex-Gov- 
ernor of  the  Bank  of  England,  on  Bankers — Banking  Schemes  andr' 
Projects  Prior  to  the  Foundation  of  the  Bank  of  England  —  The 
Idea  of  Credit  Banks , 30-48 

Chapter  III. 

FOUNDATION   AND   EARLY   HISTORY   OF   THE   BANK  OF 

ENGLAND.~Why  the  Bank  was  Established— Origin  of  the 
Bank — The  Governor  and  Company  of  the  Bank  of  England  — 
History  of  William  Paterson,  its  Founder — He  dies  Unhonored  and 
Neglected — Prophets  who  Predicted  Financial  Ruin — "The  Old 
Lady  of  Threadneedle  Street  " —  Paterson  and  his  lU-Fated  Darien 
Scheme — Present  Condition  of  the  Bank — The  Policy  of  the  Bank 
Assailed  by  the  Public  —  How  the  Bank  is  Officered — The  Bank 
Charter  —  How  it  Reads  —  Restrictions,  Impositions  and  De- 
mands— Buying  Property  from  and  Lending  Money  to  the  Crown 
—  Suspending  Payment  of  Notes  — Assistance  from  the  Govern- 
ment Averts  a  Failure — Capital  Increased — Confideuce  Restored — 
Length  of  Original  Charter 49-63 


viii  nisiOKY  ok   tiik 

Packs. 

Chapter  IV. 

HISTORY  OF  RENEWALS,  DEBTS  AND  PANICS. —Advancing 
Money  to  the  Government— How  the  Hank  Receives  Pay  from  the 
Government-  Persecution— The  "  Uea.l  Weight  "—Table  of  Re- 
newals of  Charter,  with  Capital,  Debt  and  Conditions  of  Renewals 
—An  Explanation  by  an  Ex-Governor  of  the  Bank— Amount  of 
Loans  to  the  Government— Present  Capital  of  the  Bank  of  Eng- 
land--A  Panic  Quieted  by  a  Novel  Method— Merchants  Come  to 
the  Bank's  Rescue— The  Bank  Attacked  by  Rioters-  Solidity  of 
the  Bank  of  England. 64-78 

CHAPTER  V. 

PROGRESS  OF  BANKING.— The  Desirability  of  a  National  Bank 
— Success  Brings  Competition — The  Scheme  for  a  "National  Land 
Bank"— Country  Banks  Issue  their  Own  Notes— War  for  Inde- 
pendence in  America— Great  Industrial  and  Commercial  Develop- 
ment—Startling Increase  in  Banks— Unreliable  Bankers,  Worth- 
less Paper,  Unlimited  Credit  and  Prodigal  Bankers  Precipitate  a 
Big  Crxsh — Violent  Revulsion  in  London — 300  out  of  350  Banks 
Compelled  to  Stop  Payments — The  Bank  Assailed  by  Jealo'is 
Competitors — Its  Triumph — Given  Exclusive  Banking  Privileges — 
Banks  Prohibited  from  Doing  Business  Within  Sixty-five  Miles  of 
London — Sir  Henry  Parnell  on  Banking ,    ...  79  87 

CHAPTER  VI. 

SUSPENSION  OF  CASH  PAYMENTS.— Important  Epoch  in  the 
History  of  English  Banking— Passage  of  the  Restriction  Act — The 
Government  Advises  with  the  Bank — Run  on  Country  Banks — 
Bank  of  England  Again  in  Trouble — Suspension  of  Cash  Payments 
—  Embarking  on  a  New  Course — The  Bank  Issues  a  Notice  to  the 
Public — Increase  in  Country  Banks  in  1797 — Cause  of  Enormous 
Failures — Extending-  the  Field  for  Circulation  of  Bank  of  England 
Paper — History  of  Depreciation  of  Currency — Paper  Raised  to  Par 
by  Accidental  Circumstances 88-93 

Chapter  VII. 

SPECULATIONS,  SCHEMES,  FAILURES  AND  LOSSES.— Bank 
of  England  Resumes  Cash  Payments — Vicissitudes  of  Banking — 
Speculative  Rage — No  Scheme  Too  Hazardous — Speculation  of 
Today  not  Without  a  Precedent — Worthless  Paper  Readily  Nego- 
tiated— Discounts  Easily  Olitained — Schemes  of  Country  Bankers 
— A  Cyclone  of  Failures — Bank  of  England  Makes  a  Serious  Blun- 
der— Distrust  Fully  Awake — A  Tremendous  Run — Cause  of  the 
DifTiculties — An  Instructive  Table — Accumulation  of  Securities — 
What  the  Directors  Should  Have  Done  to  Avoid  Disaster — Loss  of 
Three  Millions  of  Bullion — The  South  Sea  Bubble — A  Delirium  of 
Speculation — List  of  the  Bubble  Companies  in  1721 — Getting  Rich 
VVithout  Trouble— Philanthropist  Thomas  Guy 99-110 

Chapter  VIII. 

LOOSE  banking  METHODS  PARALYZE  BUSINESS.— Im- 
proving Country  Banking  —  Suppressing   £1   Notes — Repealing 


BANK    OF    ENGLAND.  IX 

Pagbs. 
Laws — Circulation  of  Notes  for  Less  than  ^5  Forbidden — Specu- 
lative Schemes  Again  in  Abundance — Rage  for  Establishing  New 
Banks — Voluminous  Issue  of  Notes — Raising  the  Rate  of  Interest 
—Shock  to  Industrial  Undertakings—  How  the  Bank  of  England 
Escaped  Failure — Natural  Obstacle  to  Formation  of  New  Banks — 
The  Railway  Mania — Gigantic  Frauds  Perpetrated  by  Projectors  of 
Imaginary  Railroads— The  Country  Wild  with  Speculation — The 
Crash  Wrecks  Thousands  —  A  Banker's  Duty — The  Penalty  of 
Neglect 111-124 

Chapter  IX. 

BANK    OF    ENGLAND    HANDLED   BY   PARLIAMENT.— The 

Famous  1844  Bank  Act — Sir  Robert  Peel  Battling  for  Reform — 
Providing  a  Remedy  for  Instability — Financial  Writers  Interested 
— Peel's  Speech  on  the  Renewal  of  the  Bank's  Charter — Important 
Provisions  of  the  New  Law — Price  Paid  for  Exclusive  Privilege  of 
Banking— Suspending  the  Bank  Act  in  1866 — Fundamental  Prin- 
ciple upon  which  English  Currency  Rests — The  Law  and  the  Bank 
—The  Bank's  Control  of  Its  Capital 125-135 

Chapter  X. 

RADICAL  CHANGES  IN  THE  MANAGEMENT  OF  THE 
BANK. — Privileges  of  Officers  and  Directors — Groundless  Nature 
of  a  Charge  Often  Made-  Plausible  Objections  to  New  Laws — 
Amount  of  Notes  Issued — How  to  Determine  an  Excess  of  Cur- 
rency—  Notes  in  the  Banking  Department  —  Great  Changes 
Wrought  in  the  Management  of  the  Bank — Restricting  Banks  for 
the  Issuing  of  Notes — Convertibility  of  Bank  of  England  Notes — 
Variations  in  the  Rate  of  Discount — Temporary  Suspension  of  the 
Act  of  1844  to  Avert  a  Panic — Effect  of  Modification  of  Usury 
Laws — Particulars  as  to  Number  and  Class  of  Depositors — Devel- 
opment of  the  Methods  of  Economizing  Money — Transitory 
Credits — Discount  Variations — Credit  and  Capitalists — No  Change 
Probable  in  the  Methods  of  the  Bank  of  England — Should  Banks 
be  Prohibited  from  Issuing  Notes  —  True  Way  to  Remove  Danger 
—  Modification  of  Banking  Laws  —  Bank  of  England  Notes  Made 
Legal  Tender 136-154 

Chapter  XI. 

FRAUDS,  forgeries,  THEFTS  AND  DEFALCATIONS.— The 
First  Forged  Note  on  the  Bank  of  England  and  Execution  of  the 
Forger — How  Discovered— Counterfeiting  —Decision  of  the  Lord 
Chief  Justice — Defeating  Counterfeiters — Great  Theft  of  the  Head 
Cashier  of  the  Bank  of  England — A  Loss  of  _2{^320,000 — Inventing 
a  Safety  Paper — Men  Executed  by  Scores  for  Counterfeiting — In- 
genious Schemes  for  Swindling — Sir  Robert  Peel  Victimized — 
Another  Thieving  Official  —  Fauntleroy  Secures  ;/'360,000  by 
Forgery — A  Rascally  Clerk  Escapes  to  the  United  States  and  is 
Apprehended — Losses  by  Forgery — A  Chief  Clerk  Swindles  the 
Bank  to  the  Amount  of  ;^800,000— His  Novel  Method  that  went 
Undetected  for  Five  Years — Bidwell's  Million  Pound  Swindle. .  .155-167 


X  HISTORY    OF    THE 

Chapter  XII. 

MANAC.r.MF.N'T  OF  THE  NATIONAL  DEBT.— M.inap:eitient  of 
all  Other  Stocks  Held  by  the  Hank— How  the  Work  is  lY-rformca 
by  the  Hank  of  England— Stock  Offices— Dividend  Pay  Olhce— 
Cheque  Office— Unclaimed  Dividends— Stock  Office  Library— 
Nunil)er  of  Books  in  Library— A  Perfect  System— 178,000  Distinct 
Accounts-  Register  Office— Post  Warmnt  Office— Tlie  Routine 
Work  iof  Above  Named  Offices  Descrdjcii  —  Names  of  the  Gov- 
ernors of  the  Bank  of  England  from  1694  to  1888 168-178 

Chapter  XIII. 

INFERNAL  WORKINGS  OF  THE  BANK  OF  ENGLAND.— Pri- 
vate Drawing  Office  -Public  Drawing  Office  -What  is  Considered 
a  Remunerative  Balance —Working  Accounts— Number  of  Bills 
Issued  Business  in  the  Bill  Office  -Branch  Banks,  and  How 
Conducted — Drawing  Accounts  and  Discount  Accounts — Import- 
ant Service  Performed  by  Branch  Banks  Number  and  Location 
—  Rules  and  Regulations  Under  Which  Accounts  are  Received  in 
the  Bank  of  England— Denomination  of  Bank  of  England  Notes .  179-189 

Chapter  XIV. 

BUSINESS  OF  THE  BANKING  DEPARTMENT.— How  it  is  Con- 
ducted— .'Vmounts  Cheques  may  be  Drawn  for— Opening  an  Ac- 
count with  the  Bank — ^Business  the  IJank  Transacts  for  Customers 
— Bank  Deposits — Profits  of  the  Batik— How  Derived — Expenses 
of  the  Bank— Weekly  Bank  Statement  Given  and  Analyzed — Pro- 
portion of  Assets  to  Liabilities 190-196 

Chapter  XV. 

DISCOUNTS,  DIVIDENDS,  LOANS  AND  RULES.— Duties  of 
the  Discount  Office — Precaution  Before  Discounting — Powers  of 
the  Directors — Who  Are  Allowed  Discount  Accounts — Checking  a 
Speculative  Tendency — Inconsistency  of  Long  Date  Discounts — 
Opinion  of  an  English  Writer — Real  and  Fictitious  Transactions — 
Rules  to  Observe — Who  Controls  the  Rate  of  Discount? — False 
Notions  Regarding  the  Power  of  the  Bank  of  England — Rate  of 
Discount  from  1794  to  Date— Dividends  on  Bank  of  England 
Stock  from  1694  to  1888-The  Price  of  Bank  Stock  and  How 
Bought  and  Sold 197-206 

CHAPTER   XVI. 

ENGLISH  AND  AMERICAN  CLEARING  HOUSES.— How  they 
Originated  in  London — Primitive  Manner  of  Conducting  Business 
—  1  low  Transacted  Today  and  Amount  of  Business  Annually  Done 
— A  Clearing  House  for  Country  Bankers — American  Clearing 
Houses — Detailed  Statement  of  the  Routine  Business  in  the  New 
Yoik  Clearing  House— Scene  in  the  Clearing  House  During  Busi- 
ness Hours  -Specimen  Credit  Ticket-  How  the  Banks  are  Rep- 
resented and  Settlements  are  Made— The  Settling  Clerk  and  De- 
livery Clerk  -Duties  of  the  Proof  Clerk-- Specimen  Sheet  of 
Clearing  House  Proof-Penalty  for  Making  Errors — Specimen 
Sheet  of  Settling  Clerk's  Statement 207  216 


BANK    OF    ENGLAND.  XI 

Chapter  XVII. 

BANK  OF  ENGLAND  AND  AMERICAN  BANK  NOTES.— Des- 
cription of  a  Bank  of  England  Note — How  Made — Peculiarity  of 
Design — Nuniljcr  of  Notes  Paid  out  Daily  and  Number  Cancelled 
— How  Burned  and  Destroyed — The  Accountant's  Library — Why 
Notes  are  Not  Reissued — The  Bank's  Printing  Office — Durability 
of  the  Notes — Cutting  Notes  in  Two  Pieces  Sent  Through  the 
Mails — Curiosities  in  the  Bank  Album — Barlow's  Remarks  on  liank 
of  England  Notes — Antiquity  of  Bank  Notes — United  States  Cur- 
rency— How  it  is  Printed,  Worn  Out  and  Destroyed — Workings  of 
the  National  Bank  Redemption  Agency 217-21 'J 

Chapter  XVIII. 

ISSUE  DEPARTMENT.— NO  INTEREST  ON  DEPOSITS.— Pre- 
paring Bank  Notes  for  Use — How  Notes  Get  into  Circulation — 
Exchanging  Notes  for  Gold — Inland  and  Foreign  Withdrawals — 
The  Bullion  Office — Bank  of  England  Purchasing  Gold — Gold 
Weighing  Room — Mechanical  Accuracy  and  Dispatch — No  In- 
terest Allowed  on  Deposits — An  Ex-Governor  Defends  the  Policy 
of  the  Bank— A  Tradition 230-237 

Chapter  XIX. 

PRESENT  MANAGEMENT  AND  DESCRIPTION  OF  THE 
BANK  OF  ENGLAND.— How  the  Bank  is  Officered  and  Man- 
aged— Qualification  and  Election  of  Officers — Salaries — Tenure  of 
Office — Court  of  Directors — Bank  Committees — Explanation  of 
their  Duties — Division  of  the  Clerical  Force — Working  in  Harmony 
— The  Secretary  and  his  Duties — Total  Number  of  Employees 
in  the  Bank— The  Enormous  Salary  List — Conveniences  and  Socie- 
ties for  Clerks — Library,  Reading  and  Dining  Room — Insurance 
and  Guarantee  Society — -Medical  Attendance— How  Clerks  are 
Appointed — Names  of  the  Various  Departments — Description  of 
the  Bank — Its  Exterior  and  Interior — Number  ()f  Acres  the  Bank 
Occupies — Statue  in  Bank,  with  Inscription  Thereon — How  the 
Bank  is  Guarded — Officers  who  Reside  in  the  Bank — Eminent 
Services  Rendered  by  the  Bank 238-253 

Chapter  XX. 

ENGLISH  AND  SCOTCH  BANKS.— Scotch  Banks  Not  Affected 
by  the  Bank  of  England — First  Scotch  Bank — Its  Founder — Cap- 
ital and  Distiibution  of  Shares — Origin  of  British  Linen  Bank — 
Passing  Through  Commercial  Crises — Minimum  Deposit  Received- 
Allowing  Interest  on  Deposits — Responsibility  of  Shareholders — 
Superior  Banking  System — Taking  Advantage  of  an  Old  Law — A 
Scotch  Cash  Credit  —  General  Solidity  of  Scotch  Banks — Re- 
sposibility  of  Bank  Partners — Law  on  Attaching  a  Debtor's  Prop- 
erty—Scotch  and  Irish  Banks  in    London 254-260 

Chapter  XXI. 

A  FINANCIAL  pressure.— Definition  of  a  Pressure  — Dates  of 
Principal  Pressures  —  Speculation  the  Main  Cause  —  Gilbart  on 
Pressures — The  Duties  of  a  Banker — Pressure  of  1847— Report  of 
the  Lords'  Committee — The  Government  Asks  the  Bank  of  Eng- 
land for  Assistance --Correspondence  Between  the  Bank  and  the 
Government  . 2C1  -270 


xii  HISTORY    01'    THE    BANK    OF    ENGLAND. 

ClIAPTKR   XXII. 
V  COPY  OF  THE  CORRESPONDENCK  Between    the  Chancellor 
*       of  the  Exchccmcr  and  the  Bank  of  E,>gla-ul,  Relative  to   the    l^c^" 

nevval  of  the  Charter  of  1844 "'^  -°' 

Chapter  XXIII. 

AMERICAN  AND  ENGLISH  BANKERS  ASSOCIATIONS--Con- 
stitution  of  the  American  Bankers  Association— \Vho  are  Eligible 
to  .Memlxrrship -Its  Objects-  How  Con.lncted-'l  he  English  In- 
stitute of  Bankers-  Its  Consliiuiion-  Facilities  Affonlcd  to  Mem- 
bers—Detailed Account  of  the  Manner  of  Conducting  Business.  .^a»-dUl 


CHAPTER    I. 


ORIGIN  OF  AND  FIRST  BANKERS  IN  THE  WORLD. 

Bank  First  Mentioned  in  the  Bible — Money  Changers  in  the 
JeivisJi  Temple — Origin  of  the  Word  Bank — People 
who  Invented  Banking—  First  Bank  in  Europe — A II 
the  Early  Banks  in  Europe — First  Bank  in  London — 
How  Bills  of  Exchange  Originated — First  Funding 
System — First  Permanent  National  Debt — Bankers 
of  Greece  and  Rome — High  Rates  of  Interest — Origin 
of  Modern  Banking — Goldsmiths  as  Bankers  i)i  Lon- 
don— English  Country  Bankers — Primitive  Financial 
Methods — Necessity  for  Money — Fundamental  Na- 
ture of  Money — What  Ancients  Used  for  Money — 
When  Gold  and  Silver  ivas  First  Coined — Invention 
of  Money — Money  Made  of  Iron,  Wood,  Shells,  Salt, 
Brass  and  Tin  Current — Origin  of  Various  Coins. 


The  denunciations  in  the  Bible,  in  Exodus  xxii,  25, 
shows  that  banking  institutions  were  of  very  ancient  date. 
The  earliest  modern  bank  was  that  of  Venice  in  1171, 
which  was  finally  closed  by  the  conquest  of  the  French 


1 1 


HISTORY    OK    THE 


in  1797.     Several  of  the  early  banks  began  at  the  follow- 
ing dates: 


Venice 1 171 

Geneva 1345 

Barcelona.. .  .  140 1 
Genoa  1407 

Am-^tcrdam.  .  1607 
Hamburg. . . .  1619 


Rotterdam.  .  .  1635 
Stockholm.  .  .  1C8S 
Bank  of  Eng- 
land  1694 

Scotland 1695 

Copenhagen  .  1736 


Berlin 1765 

UnitedStates.  1780 
StPctersburg  1780 

Ireland 17S3 

France 1800 


The  National  Banking  system  of  the  United  States 
was  established  by  Acts  of  Congress  Feb.  25,  1863,  and 
June  3,  1864. 

In  times  when  nations  were  chiefly  engaged  in  pas- 
toral or  agricultural  pursuits,  the  trade  of  banking  would 
hardly  suggest  itself  to  anybody  as  a  profitable  calling; 
and  until,  in  the  progress  of  a  community  toward  civiliza- 
tion, the  e.xtent  of  its  commercial  dealings  had  become 
very  considerable,  none  would  be  led  to  give  their  atten- 
tion to  the  occupation  of  facilitating  the  money  operations 
of  the  rest  of  the  mercantile  community.  It  is  probable 
that  the  necessity  for  some  such  arrangement  would  be 
first  experienced  in  consequence  of  the  different  weights 
and  degrees  of  fineness  of  the  coined  money  and  bullion 
which  would  pass  in  the  course  of  business  between  mer- 
chants of  different  nations.  The  principal  occupation  of 
the  money-changers  mentioned  by  St.  Matthew,  by  whom 
the  sacredness  of  the  Jewish  Temple  was  invaded,  was 
doubtless  that  of  purchasing  the  coins  of  one  country,  and 
paying  for  them  in  those  of  their  own  or  of  any  other 
people,  according  to  the  wants  and  convenience  of  their 


BANK    OF    ENGLAND.  15 

customers.  It  is  likewise  probable  that  they  exercised 
other  functions  proper  to  the  character  of  bankers,  by  tak- 
ing in  and  lending  out  money,  for  which  they  either 
allowed  or  charged  interest  {MattJiciv  xxv.  27).  Little, 
however,  is  known  with  certainty  regarding  the  nature  of 
the  money  dealings  of  the  ancient  Jews. 

In  the  time  of  Demosthenes,  banking  operations  were 
carried  on  to  a  great  extent  in  Athens.  They  exchanged 
foreign  moneys,  received  deposits  at  interest,  and  gave 
loans.  The  bankers  were  generally  of  low  origin,  such  as 
freedmen  and  aliens;  but  they  frequently  rose  to  great 
wealth  and  eminence. 

Gilbart  in  his  "Treatise  on  Banking"  says  the  term 
bank  is  derived  from  banco,  the  Italian  word  for  bench,  as 
the  Lombard  Jews  in  Italy  kept  benches  in  the  market 
place,  where  they  exchanged  money  and  bills.  When 
a  banker  failed,  his  bench  was  broken  by  the  populace; 
and  from  this  circumstance  sprang  the  term  bankrupt. 

In  the  year  1171  the  City  of  Venice  was  at  war  with 
both  the  eastern  and  western  Empires.  The  finances  were 
in  a  state  of  great  disorder,  and  the  Great  Council  ordered 
a  forced  loan  of  one  per  cent,  from  every  citizen,  upon 
payment  of  interest  at  five  per  cent.  Commissioners  were 
appointed  to  manage  the  payment  of  the  interest  to  the 
bond  holders  and  the  transfers  of  the  stock.  The  citizens 
received  stock  certificates  in  exchange  for  the  sums  they 
paid,  bearing  interest,  which  they  might  sell  or  transfer  to 
any  one  else.  The  original  loan  was  called  the  Monte 
Vecchio;  afterwards  two  other  similar  loans  were  contract- 
ed which  were  called  the  Monte  Nuovo  and  Monte  Nuovis- 
simo. 


IG  HISTORY    OF   THE 

At  this  period  the  Germans  were  masters  of  a  great 
part  of  Italy;  and  the  German  word  Banck  came  to  be 
used  as  well  as  its  Italian  equivalent  Monte,  and  was  Ital- 
ianized into  Banco,  and  the  loans  on  public  debts  were 
called  indifferently  Monti  or  Banchi,  and  the  word  was 
finally  reduced  to  Banke;  thus  we  find  an  English  writer, 
Benbrigge,  in  1646,  speaking  of  "The  three  Bankes  of 
Venice." 

Galiani,  an  Italian  historian,  says:  "  Lombard  Jews 
invented  the  business  of  banking  in  Rome  in  the  ninth 
century,  and  were  called  Argentarii.  They  received  the 
money  of  their  clients  much  after  the  manner  of  the  banks 
of  the  nineteenth  century,  who  could  give  their  creditors 
cheques  on  their  bankers,  as  is  also  the  modern  custom. 
They  also  invented  bills  of  exchange,  and  to  send  a  draft 
for  money  was  called  permutare.  We  find  in  the  middle 
ages  an  increase  in  the  business  of  the  Roman  banks.  As 
commerce  increased  in  the  prosperity  of  the  eleventh  cen- 
tury, they  established  correspondents  in  various  parts  of 
Europe  and  drew  bills  upon  them  called  Bills  of  Exchange." 

The  meaning  of  the  word  bank  was  the  same  in  Eng- 
lish when  it  was  first  introduced.  The  essential  features 
of  all  these  early  banks  was  that  a  number  of  persons 
placed  their  money  in  them  and  received  in  exchange  for 
it,  credit  or  a  promise  to  pay,  which  credit  they  might 
transfer  to  any  one  else.  The  Bank  of  England  was  form- 
ed in  a  similar  manner  of  a  company  of  persons  who 
advanced  a  sum  of  money  to  the  government  and  received 
in  exchange  for  it  an  annuity.  This  was  the  foundation 
of  the  national  debt  of  Great  Britain,  and  to  the  present 
day  the  funds  are  legally  called  "Bank  Annuities." 


BANK    OF    ENGLAND.  l7 

During  the  Middle  Ages,  when  commerce  was  but 
little  developed,  there  was  little  field  for  banking  opera- 
tions; but  the  business  was  first  established  in  Europe  by 
the  Lombard  Jews  in  Italy,  A.  D.  808,  of  whom  some  set- 
tled in  Lombard  Street,  London,  where  many  bankers  still 
have  their  places  of  business.  It  seems  to  have  been 
revived  in  Florence  during  the  early  part  of  the  twelfth 
century.  From  the  success  that  attended  the  commercial 
enterprises  of  the  Florentines,  that  city  became  the  centre 
of  the  money  transactions  of  every  commercial  country  of 
Europe,  and  her  merchants  and  bankers  accumulated  great 
wealth.  At  one  time  Florence  is  said  to  have  had  80 
bankers;  and  we  find  that  between  1430  and  1433,  76  bank- 
ers at  Florence  lent  the  state  4,865,000  gold  florins. 

As  previously  stated,  the  earliest  public  bank  in 
modern  Europe  was  that  of  Venice,  founded  in  ii/r.  It 
originated  in  the  financial  difficulties  of  the  State,  which, 
in  order  to  extricate  itself,  had  recourse  to  a  forced  loan 
from  the  citizens,  promising  them  interest  at  the  rate  Of 
five  per  cent.  The  stock  was  made  transferable,  and  a 
body  of  commissioners,  called  the  Camera  degli Imprestiti, 
or  Chamber  of  Loans,  was  appointed  to  manage  the  trans- 
fer of  stock  and  the  payment  of  interest.  This  is  believed 
to  be  the  earliest  instance  on  record  of  the  funding  system, 
and  the  first  example  in  any  country  of  a  permanent 
national  debt.  This  Chamber  of  Loans,  as  originally  insti- 
tuted for  the  purpose  of  managing  the  public  debt,  could 
scarcely  be  called  a  bank;  and  it  does  not  appear  to  have 
carried  on  anything  like  a  banking  business  for  several 
centuries.  Venice  being  the  centre  of  an  enormous  com- 
merce, foreign    coins,  usually  in   a  very  worn    or  clipped 


18  HISTORY    OF   THE 

condition,  were  in  circulation,  to  the  great  inconvenience 
of  merchants;  and  hence  the  State  had  recourse  to  the 
expedient  of  authorizing  theChamber  of  Loans  to  receive 
coins  of  all  sorts,  and  to  pay  for  them  in  notes  an  amount 
corresponding  to  the  real  amount  of  bullion  deposited. 
These  notes  promised  to  pay  the  bearer  on  demand  a  defi- 
nite quantity  of  bulHon  of  the  proper  fineness.  The  bank, 
however,  does  not  seem  to  have  discounted  bills  on  its 
own  account.  Its  only  advantage  was  to  save  the  wear 
and  tear  of  the  coinage,  and  to  insure  a  uniform  standard 
jn  mercantile  transactions.  Its  notes  always  bore  a  prem- 
ium as  compared  to  the  current  money  of  the  city;  and  it 
continued  to  exist  until  the  fall  of  the  republic  in  1797. 

Banking  appears  to  have  reached  a  high  state  of  de- 
velopment among  the  ancients.  The  bankers  of  Greece 
and  Rome  exercised  nearly  the  same  functions  as  those  of 
the  present  day,  except  that  they  do  not  appear  to  have 
issued  notes.  They  received  money  on  deposit,  to  be  re- 
paid on  demands  made  by  cheques  or  orders,  or  at  some 
stipulated  period,  sometimes  paying  interest  for  it,  and 
sometimes  not.  Their  profits  arose  from  their  lending  the 
balance  at  their  disposal  at  higher  rates  of  interest  than 
they  allowed  the  depositors.  They  were  also  extensively 
employed  in  valuing  and  exchanging  foreign  moneys  for 
those  of  Athens,  Corinth,  Rome,  &c.,  and  in  negotiating 
bills  of  exchange.  In  general  they  were  highly  esteemed 
and  great  confidence  was  placed  in  their  integrity.  The 
rate  of  interest  charged  by  the  bankers  was  sometimes  very 
high,  but  that  was  not  a  consequence,  as  has  been  alleged, 
of  their  rapacity,  but  of  the  defective  state  of  the  law 
which,  as  it  gave  every  facility  to  debtors  disposed  to 


I;ANK    of    ENGLAND.  19 

evade  payment  of  their  debts,  obliged  the  bankers  to 
guarantee  themselves  by  charging  a  proportionally  high 
rate  of  interest. 

Banking  reappeared  in  Italy  upon  the  revival  of  civil- 
ization. The  bank  of  Venice  is  reputed  the  first  in  date  in 
the  history  of  modern  Europe;  but  it  did  not  become  a 
bank,  as  we  understand  the  term,  till  long  after  its  founda- 
tion. Historians  inform  us  that  the  republic,  being  hard 
pressed  for  money,  was  obliged,  upon  four  different 
occasions,  in  1156,  1171,  1480,  and  15  10,  to  levy  forced  con- 
tributions upon  the  citizens,  giving  them  in  return  perpetual 
annuities  at  certain  rates  per  cent.  The  annuities  due 
under  the  forced  loan  of  1156  were,  however,  finally  ex- 
tinguished in  the  i6th  century;  and  the  offices  for  the 
payment  of  the  annuities  due  under  the  other  two  loans 
having  been  consolidated,  eventually  became  the  Bank  of 
Venice.  This  might  be  effected  as  follows: — The  interest 
on  the  loan  to  Government  being  paid  punctually,  every 
claim  registered  in  the  books  of  the  office  would  be  con- 
sidered as  a  productive  capital;  and  these  claims,  or  the 
right  of  receiving  the  annuity  accruing  thereon,  must  soon 
have  been  transferred,  by  demise  or  cession,  from  one  per- 
son to  another.  This  practice  would  naturally  suggest  to 
holders  of  stock  the  simple  and  easy  method  of  discharg- 
ing their  mutual  debts  by  transfers  on  the  office  books, 
and  as  soon  as  they  became  sensible  of  the  advantages  to 
be  derived  from  this  method  of  accounting,  bank-money 
was  invented.  It  will,  however,  be  seen  that  the  estab- 
lishment thus  described  was  at  first  no  more  than  the 
transfer  office  of  a  National  Debt,  transfers  of  which  were 
accepted  at  par  in  discharge  of  private  debts,  and  it  is 


20  HISTORY    OF   THE 

indeed  said  that  the  funded  debt  transferred  sometimes 
commanded  a  sHght  premium  above  the  current  money 
of  the  republic.  This  cstabHshmcnt  was  ruined,  after 
passing  through  many  changes,  by  the  invasion  of  the 
French  in  1797.  Thus  the  origin  of  modern  banking  may 
be  authentically  and  directly  traced  to  the  money-dealers 
of  Florence,  who  were  in  high  repute  as  receivers  on  de- 
posit and  lenders  of  money  in  the  14th  century;  and 
banking  was  indeed  practiced  at  Florence  in  the  13th  if 
not  in  the  12th  century.  Mr.  Macleod  writes  {English 
Banking,  vol.  i.  289) — 

"The  names  of  the  Bardi,  Acciajuoli,  Peruzzi,  Pitti, 
and  Medici  were  famous  throughout  Europe.  In  1345  the 
Bardi  aud  the  Peruzzi,  the  two  greatest  mercantile  houses 
in  Italy,  failed.  Edward  III.  owed  the  Bardi  900,000  gold 
florins,  which  his  war  with  France  prevented  him  paying; 
and  the  king  of  Sicily  owed  them  100,000  gold  florins.  The 
deposits  of  citizens  and  strangers  with  the  Bardi  were 
550,000  gold  florins.  The  Peruzzi  were  owed  600,000  gold 
florins  by  Edward  III.,  and  100,000  by  the  king  of  Sicily, 
and  the  deposits  they  owed  their  customers  were  350,000 
gold  florins.  The  fall  of  these  two  great  pillars  of  credit 
involved  that  of  multitudes  of  other  smaller  establishments; 
the  community  of  Florence  had  never  been  thrown  into 
such  ruin  and  disorder  before.  And  thereupon  he  breaks 
out  against  the  folly  of  his  fellow-citizens,  entrusting  their 
money  to  the  care  of  others  for  the  love  of  gain.  The  city, 
however,  recovered  from  this  terrible  disaster,  and  we  find 
that  between  1430  and  1433  seventy-six  bankers  at  Flor- 
ence lent  4,865,000  gold  florins.  At  one  time  Florence  is 
said  to  have  had  eighty  bankers,  but  not  any  public  bank." 


BANK    OF    ENGLAND.  21 

The  business  of  banking  was  not  introduced  into  En- 
gland till  the  17th  century,  when  it  began  to  be  undertaken 
by  goldsmiths  in  London,  who  appear  to  have  borrowed  it 
from  Holland.  It  was  attacked  as  innovations  commonly 
are.  From  a  pamphlet  published  in  1676,  entitled  TJie 
Mystery  of  the  Ncw-Fashioned  Goldsmiths  or  Bankers 
Discovered,  a  passage  may  be  reproduced  that  will  be  found 
interesting: — "Much  about  the  same  time — the  time  of  the 
civil  commotion— the  goldsmiths  (or  new-fashioned  bank- 
ers) began  to  receive  the  rents  of  gentlemen's  estates 
remitted  to  town,  and  to  allow  them,  and  others  who  put 
cash  into  their  hands,  some  interest  for  it  if  it  remained 
but  a  single  month  in  their  hands,  or  even  a  lesser  time. 
This  was  a  great  allurement  for  people  to  put  money  into 
their  hands,  which  would  bear  interest  till  the  day  they 
wanted  it;  and  they  could  also  draw  it  out  by  one  hund- 
red pounds  or  fifty  pounds,  &c.,  at  a  time  as  they  wanted 
it,  with  infinitely  less  trouble  than  if  they  had  lent  it  out 
on  either  real  or  personal  security.  The  consequence  was 
that  it  quickly  brought  a  great  quantity  of  cash  into  their 
hands,  so  that  the  chief  or  greatest  of  them  was  now 
enabled  to  supply  Cromwell  with  money  in  advance,  on 
the  revenues,  as  his  occasion  required,  upon  great  advan- 
tages to  themselves." 

Sir  Josiah  Child  also  attacked  "that  innovated  prac- 
tice of  bankers  in  London"  in  his  Neiu  Discourse  of  Trade, 
though  he  subsequently  became  himself  a  banker  ;  and 
his  house,  Messrs  Child  &  Co.,  of  Temple  Bar,  and  the 
house  of  Messrs  Hoare,  in  Fleet  Street,  still  survive  as  the 
only  private  banks  now  in  existence  in  London  which 
were  established  previous  to  the  Bank  of  England. 


22  HISTORY    OF   THE 

Money  matters  in  England  were  also  for  some  time 
regulated  by  the  Royal  Exchangers,  but  their  calling  fell 
into  disuse  until  revived  by  Charles  I.  in  1627.  The  royal 
mint  in  the  tovver  of  London  was  used  as  a  bank  of  deposit 
until  Charles  I.,  by  a  forced  loan,  in  1638,  destroyed  its 
credit.  The  Goldsmiths'  Company,  of  London,  undertook 
private  banking  in  1645,  but  on  the  closing  of  the  Exche- 
quer, in  1672,  their  transactions  terminated. 

It  thus  appears  that  in  every  country  where  money 
was  in  use,  there  the  trade  of  banking  seemed  to  follow 
as  a  natural  consequence.  According  to  the  commonest 
principles  of  the  economy  resulting  from  division  of  labor, 
wherever  money  came  into  general  use,  there  banking 
became  a  common  trade,  in  the  same  way  as  the  trades  of 
butchers  and  bakers,  all  found  equally  useful  in  their  re- 
spective ways  for  the  distribution  of  articles  of  consumption 
in  the  most  easy  and  in  the  most  economical  manner. 
Banking  was  the  channel  into  which  money  passed  almost 
as  an  article  of  commerce, — the  mode  by  which  the  money, 
not  immediately  required  by  one  individual,  found  its  way 
to  be  used  by  another  :  the  banker  thus  appearing  to  act, 
and  really  acting,  in  the  double  capacity  of  borrower  and 
lender  ;  but  in  neither  case  was  he  a  creator,  but  a  mere 
distributor  of  capital,  any  more  than  the  butcher  perform- 
ed any  other  functions  than  that  of  distributing  the  articles 
in  which  they  respectively  dealt,  and  thus  contributing  to 
the  general  wealth  of  the  community  by  the  economy  of 
time  and  money  effected  by  this  general  system. 

Prior  to  the  establishment  of  the  bank  of  England, 
banking  in  London  was  conducted  first  by  the  Jews,  who 
were  succeeded  by  the  Lombards,  who  were  in  turn  sup- 


BANK    OF    ENGLAND.  23 

planted  by  the  goldsmiths.  The  latter  lent  money  at 
rates  much  below  those  charged  by  their  predecessors, 
and  they  issued  promissory  notes  payable  on  demand,  or 
at  a  certain  period  after  date.  These  bankers  deposited 
their  funds  at  the  royal  mint  in  the  tower  of  London. 
This  practice  was  discontinued  when  Charles  I.,  being  in 
want  of  money,  seized  the  amount  thus  deposited, 
;^200,000,  by  which  means  the  bankers  were  utterly  ruin- 
ed. During  the  civil  war  the  business  of  the  goldsmiths 
largely  increased,  and  during  the  commonwealth,  as  well 
as  subsequently,  various  plans  were  devised  by  different 
individuals  for  the  establishment  of  public  banks.  No 
action  was,  however,  taken  to  mature  and  carry  out  these 
plans  until  the  establishment  of  the  bank  of  England. 
After  the  seizure  of  the  funds  by  Charles  I.,  it  was  the 
practice  of  the  goldsmiths  to  deposit  their  surplus  means 
in  the  Exchequer,  which  funds  were  drawn  once  a  week,  to 
meet  such  demands  as  might  be  made  upon  their  owners. 
Charles  II.,  in  1672,  being  in  want  of  money,  closed  the 
Exchequer,  and  seized  the  funds  belonging  to  the  gold- 
smiths, amounting  to  ;^i,328,562,  oa  which  there  accrued 
25  years'  interest,  making  thereby  a  sum  total  of  ;^3,32i,- 
313.  No  consideration  was  given  for  any  part  of  this  large 
sum,  except  ^£664,26^,  for  which  government  loan  was 
issued,  forming  the  basis  of  the  present  national  debt  of 
Great  Britain.  As  may  readily  be  imagined,  the  gold- 
smiths were  ruined  irretrievably  by  this  infamous  pro- 
ceeding. 

The  earliest  country  bank  established  in  England,  of 
which  there  exists  any  record,  was  at  Newcastle-on-Tyne, 
in  1755.     This  was  a  bank  of  issue.     From  that  period  the 


24  HISTORY    OF   THE 

number  of  these  institutions  increased.     In  1694  the  Bank 
of  England  was  established. 

In  the  primitive  ages  of  the  world  we  have  abundant 
evidence  that  there  was  no  such  a  thing  as  money.  When 
persons  traded,  they  exchanged  the  products  directly  with 
one  another.     Thus  we  have  in  Iliad,  vii.  468:  — 

•'From  Lemnos'  Isle  a  numerous  fleet  had  come 
Freighted  with  wine.         *        *        *        * 
»        *        *        *        All  the  other  Greeks 
Hastened  to  purchase  some  with  brass,  and  some 
With  gleaming  iron  :  some  with  hides, 
Cattle,  or  slaves." 

This  exchange  of  products  against  products  is  termed 
barter,  and  the  inconveniences  of  this  mode  of  trading  were 
palpable.  What  haggling  and  bargaining  it  would  require 
to  determine  how  much  leather  should  be  given  for  how 
mtich  wine,  how  many  oxen,  or  how  many  slaves.''  Some 
ingenious  person  would  then  discover  that  it  would  great- 
ly facilitate  traffic,  if  the  things  to  be  exchanged  were 
referred  to  some  common  measure.  But  the  state  of  barter 
still  continued,  as  it  is  quite  common  at  the  present  day 
when  the  precious  metals  are  used  as  money,  to  exchange 
goods  according  to  their  value  in  money.  Such  a  state  of 
things  in  no  way  implied  money,  or  currency,  or  circulat- 
ing medium. 

The  necessity  for  money  arises  from  a  somewhat 
different  cause.  So  long  as  the  things  exchanged  were 
equal  in  value  there  would  be  no  need  for  money.  If  it 
happened  that  the  exchanges  of  products  or  services  among 
persons  were  equal,  there  would  be  an  end  of  the  matter. 
But  it  would  often  happen  that  when  one  person  required 
some  product  or  service  from  his  neighbor,  that  neighbor 


DANK    OF    ENGLAND. 


would  not  require  an  equal  amount  of  product  or  service 
at  the  same  time,  or,  perhaps,  even  none  at  all.  If  then  a 
transaction  took  place  with  such  an  tineqiial  result,  there 
would  remain  a  certain  amount  or  difference  of  product 
due  from  the  one  to  the  other,  and  this  would  constitute  a 
debt — that  is  to  say,  a  right  or  property  would  be  created 
in  the  person  of  the  creditor  to  demand  this  balance  of 
product  at  some  future  time,  and  at  the  same  time  a  duty 
is  created  in  the  person  of  the  debtor  to  pay  the  product, 
or  perform  the  service,  when  required. 

Now  among  all  nations  who  exchange,  this  result 
must  happen  : — Persons  want  something  from  others  when 
those  other  persons  want  nothing  from  them.  And  it  is 
easy  to  imagine  the  inconveniences  which  would  arise  if 
persons  never  could  get  anything  they  wanted,  unless  the 
persons  who  could  supply  these  things  wanted  something 
in  return  at  the  same  time.  In  process  of  time  all  nations 
hit  upon  this  plan : — they  fixed  upon  some  material  sub- 
stance which  they  agreed  to  make  always  exchangeable 
among  themselves  to  represent  the  amount  of  debt.  That 
is,  that  if  an  unequal  exchange  took  place  among  persons 
with  a  balance  due  from  one  to  the  other,  then  an  amount 
of  this  universally  exchangeable  merchandise  was  given 
to  make  up  the  balance,  so  that  the  person  to  whom  the 
balance  was  due  might  get  an  equivalent  from  some  other 
person. 

Thus  is  seen  the  fundamental  nature  of  money,  as  this 
universally  exchangeable  merchandise  is  called  ;  its  espe- 
cial and  particular  purpose  is  to  represent  the  debts 
that  arise  from  unequal  exchanges  among  men,  and 
to    enable    persons    to    obtain    the    equivalent    of    the 


26  HISTORY    OF   THE 

service   they   have   done  to  one  person  from  some  one 

else. 

An  old  phamphleteer  in  1710  writes:  "Trade  found 
itself  unsuffcrably  straightened  and  perplexed  for  want  of 
a  general  specie  of  a  complete  intrinsic  worth  as  a  medium 
to  supply  the  defect  of  exchanging,  and  to  make  good  the 
balance,  where  a  nation,  or  a  market,  or  a  merchant  de- 
mands of  another  a  greater  quantity  of  goods  than  either 
the  buyer  had  goods  to  answer,  or  the  seller  had  occasion 
to  take  back." 

But  when  we  consider  the  purposes  for  which  money 
is  intended,  it  is  easily  seen  that  no  substance  possesses  so 
many  advantages  as  metal.  The  use  of  money  being  to 
preserve  the  record  of  services  being  due  to  the  owner  of 
it  for  any  future  time,  it  is  clear  that  it  should  not  be  lia- 
ble to  alter  by  time.  A  money  of  dried  codfish  would  not 
be  likely  to  keep  very  long,  nor  would  it  be  very  easy 
divisible.  One  of  the  first  requisites  of  money  is  that  it 
should  be  divisible  into  very  small  fragments,  so  that  its 
owner  should  be  able  to  get  any  amount  of  service  at  any 
time  he  pleases.  Taking  these  requisites  into  considera- 
tion, it  is  manifest  that  there  is  no  substance  which  com- 
bines these  qualifications  so  well  as  metal.  It  is  uniform 
in  its  texture,  and  it  can  be  divided  into  any  number  of 
fragments,  each  of  which  shall  be  equal  in  value  to  another 
fragment  of  equal  weight ;  and  if  required,  these  frag- 
ments can  always  be  reunited,  and  form  a  whole  again  of 
the  aggregate  value  of  all  its  parts.  All  civilized  nations, 
therefore,  have  agreed  to  adopt  a  metal  as  money,  and 
of  metals,  gold,  silver  and  copper  have  been  chiefly 
used. 


SANK    OF    ENGLAND.  27 

MONEY  AND   PRECIOUS  METALS  FIRST  DISCOVERED   AND 

USED. 

Salt  is  current  in  Abyssinia. 

Codfish  is  current  in  Iceland. 

Cakes  of  tea  are  used  in  India. 

Shells  are  used  in  India  and  Africa. 

Pieces  of  silk  pass  as  money  in  China. 

Bronze  was  coined  in  China  1120  B.  C. 

Silver  coin  was  used  in  Britain  25  B.  C. 

Gold  was  first  coined  in  Rome  207  B.  C. 

Silver  was  a  metal  known  to  the  ancients. 

Tin  was  coined  by  Dionysius  I.  of  Syracuse. 

Leaden  coin  is  current  in  the  Burman  Empire. 

Platinum  was  coined  in  Russia  A.  D.  182S — 1845. 

Gold  is  a  metal  known  from  the  remotest  times. 

Silver  money  was  not  used  in  Rome  before  269  B.  c. 

Brass  money  is  spoken  of  by  Homer  as  existing  1184 
B.  c. 

Brass  was  coined  in  Rome  under  Servius  Tullius  573 
B.  c. 

Paper  money  was  in  use  in  the  13th  century  at  Milan, 
Italy. 

Cattle  were  used  for  money  in  ancient  Greece  and 
Rome. 

Nails  of  iron  and  copper  were  used  in  Greece  as  the 
National  coin. 

Wampum  was  used  by  the  American  Indians  as  a  pur- 
chasing power. 

Skins  of  wild  animals  were  used  by  the  ancient 
Romans  for  currency. 


OK  HISTORY    or   THE 

According  to  Heroditus  the  Lydians  were  the  first 
to  coin  gold  and  silver. 

Quantities  of  pasteboard  were  coined  in  Holland  A.  D. 
1574,  and  passed  current  as  money. 

The  largest  collection  of  coins,  125,000  in  number,  is 
in  the  cabinet  of  antiquities,  Vienna. 

Money  was  made  of  wood  and  leather  by  Numa  Pom- 
pilius,  King  of  Rome,  about  700  B.  C. 

Money  was  coined  in  the  Temple  of  Juno  Moncnta, 
from  whence  the  English  word  money  was  derived. 

The  inner  bark  of  the  mulberry  tree  was  cut  into 
round  pieces,  stamped  and  used  as  money  in  China  in 
ancient  days. 

The  Parian  Chronicle  ascribes  the  first  coinage  of 
copper  and  silver  money  to  Pheidon,  King  of  Argos  in 
yEgina,  895  B.  C. 

The  ancient  English  penny,  penig.  or  pening,  was  the 
first  silver  coin  struck  in  England,  and  the  only  one  cur- 
rent among  the  early  Saxons. 

The  coin  known  as  the  guinea  took  its  denomination 
because  the  gold  whereof  the  first  was  struck  was  brought 
from  that  part  of  Africa  so  called. 

In  Britain  as  late  as  the  Norman  conquest  two  kinds 
of  money  was  in  use,  living  money  consisting  of  slaves  and 
cattle,  dead  money  consisting  -of  metal. 

About  A.  D.  1635,  among  the  Colonists  of  Massachu- 
setts the  prevailing  currency  was  wampum,  corn  and 
beans  ;   musket  balls  passed  for  a  farthing  apiece. 

A  mint  was  established  at  Camulodumum  (Colches- 
ter), England,  by  Cunobelin,  one  of  the  native  kings,  dur- 


BANK    OF    ENGLAND.  29 

ing  the  reign  of  Augustus,  where  money  was  coined  of 
gold,  silver  and  brass. 

Coin  {cuna  pecunid)  seems  to  come  from  the  French 
coigit,  that  is,  angulus,  "  a  corner  ;  "  whence  it  has  been 
held  that  the  most  ancient  sort  of  coin  was  square  with 
corners,  and  not  round  as  it  now  is. 

Cash,  in  a  commercial  style  signifying  the  ready 
money  which  a  banker,  or  merchant,  or  other  person  has 
at  his  present  disposal,  and  is  so  called  from  the  French 
term  caisse,  that  is,  "  chest  or  coffer,"  for  the  keeping  of 
money. 

The  etymology  of  the  word  scylling  would  lead  one 
to  suppose  it  to  have  been  a  certain  quantity  of  uncoined 
silver  ;  for  whether  it  is  derived  from  pcylan,  "  to  divide  ;" 
or pecale,  "a  scale,"  the  idea  presented  by  either  word  is 
the  same  ;  that  is,  so  much  silver  cut  off,  as  in  China,  and 
weighing  so  much. 

Though  a  pound  is  one  of  the  most  common  denomi- 
nations for  money,  it  never  was  a  real  coin,  either  in  gold 
or  silver,  in  any  age  or  country.  Such  large  and  ponderous 
coins  would  have  been  in  many  respects  inconvenient. 
But  for  many  ages,  both  in  Great  Britain  and  in  other 
countries,  that  number  of  small  coins  which  was  denomi- 
nated a  pound  in  computation,  or  a  pound  in  sale,  really 
contained  a  pound  of  silver,  and  they  might  have  been  and 
frequently  were  weighed,  as  well  as  numbered,  to  ascer- 
tain their  value.  If  the  number  of  coins  that  were  denomi- 
nated a  pound  in  sale,  did  not  actually  make  a  pound  in 
weight,  an  additional  number  of  coins  were  thrown  in  to 
make  up  the  weight. 


CHAPTER    II. 


DUTIES  AND  USES  OF  BANKS  AND  BANKERS. 

IV/iai  is  a   Banker }— First  Bank   of  Deposit— Interest 
from  Borrowers — A  Bank  in  its   Simplest   Form — 
How  Profits   are  Derived — Hoiv  to  Pay  Interest  on 
Deposits — Security  Against  Fraud — Safest  Way  of 
Loaning  Deposits  -  -Securities  Pruden  t  Bankers  A  void 
—  The  Power  of  Credit— Keeping  Deposits  on  Hand — 
The  Many  Uses  of  Banks — William  E.  Gladstone  on 
Credit — Banks  of  Issue  and  Banks  of  Deposit — Ad- 
vantages of  Combining  a  System  of  Lending  Money 
with    that    of  Receiving    It — Origin    of    English 
Pounds,  ShillingSy  Pence,  Guineas  and  Sovereigns — 
Thompson  Hankey,  an  Ex -Governor  of  the  Bank  of 
England,  on  Bankers — Banking  Schemes  and  Projects 
Prior  to  the  Foundation  of  the  Bank  of  England — 
The  Idea  of  Credit  Banks. 


A  BANKER  is  the  custodian  of  the  money  of  other  per- 
sons. Such  is  his  business  viewed  in  its  simplest  aspect. 
A  banker,  if  he  hoarded  the  money  deposited  with  him, 


BANK    OF    ENGLAND.  31 

would  be  simply  a  cash  keeper  to  the  public  ;  his  bank 
would  be  literally  a  bank  of  deposit.  Even  were  the  bus- 
iness of  banks  Hmited  to  the  keeping  of  deposits,  it  would 
be  of  no  small  advantage  to  society  ;  the  depositors  would 
be  retired  from  the  care  of  their  money  and  in  many  cases 
from  the  trouble  of  handing  it  to  those  to  whom  they 
required  to  make  payment.  If  the  person  to  whom  the 
depositor  wishes  to  pay  money  intends  also  to  deposit  it, 
a  transfer  in  the  books  of  the  banker,  from  the  one  to  the 
other,  made  on  the  order  or  check  of  the  depositor,  would 
effect  the  payment.  The  money  itself  would  lie  undis- 
turbed. The  Bank  of  Amsterdam,  which  was  founded  in 
1607,  was  a  bank  of  deposit  simply.  But  the  business  of 
receiving  money  has  almost  always  been,  and  is  now  uni- 
versally, in  all  portions  of  the  civilized  world,  combined 
with  that  of  lending  it  out.  A  banker  does  not  hoard  all 
the  money  deposited  with  him — he  gives  the  greatest  por- 
tion out  to  loan.  The  lending  of  money  is  as  much  a  part 
of  his  business  as  the  receiving  of  deposits.  For  the 
money  he  lends  he  receives  interest  from  the  borrowers  ; 
and  in  this  interest  he  is  paid  for  his  trouble  in  taking 
charge  of  the  deposits,  and  for  his  risk  of  bad  debts.  The 
services  that  a  banker  performs  as  the  cash-keeper  of  his 
depositors  are  great.  In  the  case  of  persons,  not  them- 
selves in  business,  it  is  quite  usual  for  a  banker  to  make 
all  their  money  payments,  beyond  their  small  daily  expen- 
ditures, and  to  receive  the  money  payable  to  them. 

A  bank,  in  its  simplest  form,  is  an  institution  where 
money  may  be  deposited  for  safe  keeping  ;  but  banks  are 
now  established  to  lend  as  well  as  to  receive  money  ;  and 
the  profits  of  a  banker  are  commonly  derived   from  the 


33  HISTORY    OF   THF. 

excess  of  the  interest  he  receives  from  those  indebted  to 
him  over  the  interest  he  allows,  so  fiir  as  he  allows  any, 
to  those  who  have  deposited  money  with  him. 

When  money  is  received  on  deposit  it  is  commonly 
repayable  to  the  depositor  alone,  to  whom  a  deposit  note 
or  receipt  is  given,  but  it  may  be  also  paid  to  any  one 
to  whom  the  depositor  gives  an  order  on  the  bank. 

If  a  banker  undertakes  to  pay  interest  on  deposits,  the 
rate  generally  varies  according  to  the  length  of  the  notice 
the  depositor  agrees  to  give  before  withdrawing  the 
money,  the  ability  of  the  banker  to  deal  with  it  being,  of 
course,  dependent  upon  tlie  time  he  may  rely  upon  keep- 
ing it.  When  money  is  received  on  a  current  or  drawing 
account  the  customer  of  the  banker  draws  it  out,  as  he 
requires,  by  means  of  orders,  to  which  the  specific  name 
cheques  is  given.  Partly  for  convenience  and  partly  by 
way  of  security  against  fraud,  bankers  are  in  the  habit  of 
giving  their  customers  books  of  forms  of  cheques  consecu- 
tively numbered. 

In  a  primitive  state  of  society,  where  the  community 
consumes  immediately,  or  presently,  all  the  produce  of  its 
labor,  there  can  be  no  such  thing  as  capital.  All  the  com- 
munity may  be  in  a  happy  and  comfortable  condition,  but 
so  long  as  this  state  of  things  continues,  it  never  can  be 
possessed  of  capital.  When,  however,  the  same  commu- 
nity, or  any  part  of  it,  desires  and  finds  it  possible  to  lay 
by  a  part  of  its  produce,  that  is  to  consume  less  than  it 
produces,  such  surplus  becomes  capital. 

A  banker  often  makes  advances  upon  the  deposit  of 
government  securities,  railway  debentures,  bills  of  lading, 
mortgages,  municipal  bonds,  and  such  like  ;    but,  except 


BANK    OF    ENGLAND.  33 

the  government  securities,  the  others  are  generally  looked 
carefully   into  by  prudent   bankers.     Loans    are    usually 
divided  into  short  loans  and  dead  loans,  \.\iQ.  former  having 
a  fixed  time  for  their  repayment,  the  latter  no  fixed  time. 
Loans  of  the  latter  class  are  generally  avoided.    Advances 
upon  deeds,  except  in  agricultural    districts,  are   always 
objectionable.     If  depositors  have  the  power  of  demand- 
ing the  amount  of  their  deposits  of  any  kind  from   the 
banker,  while  he  usually  makes  his  advances  for  a  fixed 
or  definite  period,  it  is  evident  that  he  must  always  have 
on  hand,  uninvested,  a  considerable   sum    to   meet   such 
claims.     The  amount  necessary  for  this  purpose  may  gen- 
erally be  pretty   nearly  estimated.     It    depends    upon    a 
number  of  circumstances  ;  as  the  state  of  the  money  mar- 
ket, the  amount  and  nature  of  the  deposits,  the  average 
amount  of  daily  payments,  and  the  like.     If  a  banker  is  at 
liberty  to  issue  bank-notes  to  a  certain  amount,  it  is  evi- 
dent that  the  profit  derived  therefrom  is  equal  to  the  inter- 
est upon  the  difference  between  the  average   amount   in 
circulation  and  the  amount  of  specie  required  to  be  kept 
on  hand  to  meet  them,  less  the  expense  of  their  manufac- 
ture.    If,  however,  a  banker  were  obliged  to  keep  dead 
stock  or  bullion  equal  to  the  amount  of  his  notes  in  circu- 
lation, he  could  make  no  profit.     But  for  a  banker  in  good 
credit  it  is  considered  that  a  4th  or  a  5th  part  of  this  sum 
is  usually  sufficient.     Besides  serving  as  places  for   the 
safe  custody  of  money,  and  allowing  interest  on  deposits, 
banks  are  of  great  use  in  a  safe  and  rapid  transference  of 
money  from  one  place  to  another. 

Banking  is  trading  in  and  with  money — buying,  sell- 
ing, exchanging,  receiving  and  paying  money — not  mon- 


j4  history    or    TMK 

ey's  worth,  not  goods,  but  money  in  some  shape  or  form- 
that  medium  which  is  used  in  all  civilized  societies  for 
denoting  a  certain  exchangeable  value,  and  thus  rendering 
as  simple  and  as  easy  as  possible  the  mutual  exchange  of 
all  the  commodities  required  for  the  use  of  mankind. 

In  considering  the  advantage  and  economy  derived 
by  society  from  a  system  of  banking,  it  is  of  essen- 
tial importance  to  bear  in  mind  this  very  general 
definition,  because  it  is  by  no  means  unfrequently  sup- 
posed that  bankers  possess  great  powers  of  adding  to  the 
existing  wealth  of  the  country  by  augmenting  its  capital 
—powers  which  cannot  properly  be  attributed  to  them. 

William  I^.  Gladstone  once  said  in  a  parliamentary 
debate  : — 

"Though  banks  afford  a  valuable  assistance  in  the 
collection  and  distribution  of  capital,  it  must  not  be  sup- 
posed, as  is  often  done,  that  they  have  any  direct  influence 
over  its  formation.  That  is  the  joint  effort  of  industry 
and  economy — the  former  in  producing  convenient  and 
desirable  articles,  and  the  latter  in  saving  and  preserving 
them  for  future  use.  Credit  is  neither  more  nor  less  than 
the  transfer  of  money  or  other  valuable  produce  from  one 
set  of  individuals  called  lenders,  to  another  set  called  bor- 
rowers— a  transfer  which  is  greatly  facilitated  by  the 
establishment  of  banks.  And  as  there  can  be  no  reason- 
able doubt  that  those  who  borrow  have,  in  the  majority 
of  instances,  better  means  of  employing  capital  with 
advantage  than  those  by  whom  it  is  lent,  its  transference 
from  the  one  to  the  other  will,  in  so  far  as  this  presump- 
tion is  realized,  be  publicly  advantageous.  But  this  is  the 
entire  extent  of  the  beneficial  influence  of  what  is  called 


HANK    OF    KNCLAND. 

credit ;  and  when  it  happens,  as  is  too  often  the 
divert  capital  into  the  pockets  of  knaves  and  gamblers,  it 
is  disadvantageous.  No  doubt  we  frequently  hear  of  great 
undertakings  being  carried  on  by  means  of  credit;  but 
such  statements  are  entirely  false  and  misleading.  They 
will,  indeed,  be  uniformly  found,  when  analyzed,  to  mean 
/  only  that  the  undertakings  are  carried  on  by  means  of 
borrowed  capital.  Credit  is  impotent  to  produce  anything 
whatever.  It  is,  in  fact,  a  mere  name  for  the  trust  reposed 
by  a  lender  in  a  borrower.  To  call  it  capital  is  as  much 
an  abuse  of  language  as  it  would  be  to  call  weight  color, 
or  color  weight.  It  may  transfer  money  or  produce  from 
A  to  B,  or  from  C  to  D,  but  that  is  all  that  it  either  docs 
or  can  do.  When  credit  is  said  to  be  high,  nothing  is 
really  meant  save  that  those  who  have  money  or  capital 
to  lend  have  great  confidence  in  the  borrowers,  and  con- 
versely when  credit  is  said  to  be  low." 

Among  the  instruments  of  civilization  which  the 
ingenuity  and  industry  of  man  have  given  to  his  species, 
not  one  has  been  so  completely  characterized  by  the 
elements  of  potency  of  affect  and  universality  of  applica- 
tion as  money,  says  Lawson  in  his  ancient  History  of 
Banking.  The  love  of  gold  has  been  associated  in  the 
minds  of  unphilosophical  moralists  with  an  inordinate 
appetite  for  wealth,  oblivious  of  the  truism  that  in  the 
absence  of  money,  the  comparative  productions  of  nature, 
and  of  the  labors  of  man,  might  be  appreciated,  but  could 
not  be  harmoniously  adjusted.  In  the  days  when  gold 
was  not,  swains  might  barter  a  sheep  for  a  cow,  and  con- 
sider it  a  good  bargain,  but  when  those  days  of  simplicity 
developed  into  days  of  wisdom,  a  more  thorough  apprecia- 


^Q  insToRV  oi    HIE 

tion  of  things  took  place.  A  very  small  quantity  of  the 
finest  metals,  such  as  gold  and  silver,  being,  by  reason  of 
their  scarcity,  of  greater  value  than  other  commodities, 
because  by  common  consent  the  means  whereby  all  things 
necessary  for  man  might  be  obtained  ;  and  in  all  ages  they 
have  been  distinguished  as  precious  metals  by  all  civilized 
nations,  and  people  have  exerted  their  utmost  industry 
and  ingenuity  in  procuring  them.  But  as  even  gold  and 
silver  were  subject  to  be  adulterated  by  the  admixture  of 
baser  metals,  certain  standards  were  agreed  upon  by  which 
to  ascertain  their  purity;  and  their  value  was  computed 
by  weight,  the  unit  of  quantity  being  some  known  natural 
substance,  the  variations  in  which  were  supposed  to  lie 
within  very  narrow  limits. 

To  conform  to  this  measurement  the  pennyweight 
was  devised.  Henry  the  Third  caused  a  grain  of  wheat 
gathered  from  the  middle  of  the  ear  to  be  the  standard 
weight ;  and,  thirty-two  of  these,  well  dried,  were  to 
make  one  pennyweight  ;  twenty  pennyweights  one 
ounce,  and  twelve  ounces  one  pound  Troy  ;  then  it  was 
thought  advisable  to  divide  the  pennyweight  into  twenty- 
four  equal  parts,  called  grains. 

Before,  however,  we  proceed  to  develop  the  progress 
of  banking  in  England,  a  word  will  not  be  amiss  on  En- 
glish money.  Previous  to  the  Norman  Conquest,  the 
mode  of  reckoning  by  the  Anglo-Saxons  was  by  pounds  or 
pence.  It  is  recorded  that  William  the  Conqueror  intro- 
duced into  England  the  method  of  reckoning  by  pounds, 
shillings,  and  pence,  or  by  pounds,  ounces  and  penny- 
weights. The  pound  weight  of  silver  was  divided  into 
twelve  shillings,  composed  of  twenty  pennies  each— cor- 


BANK    OF    ENGLAND.  37 

responding  to  pounds,  ounces  and  pennyweights — or 
twenty  shillings,  of  twelve  pennies  each,  but  it  was  not 
till  some  time  afterwards  that  it  obtained  the  denomina- 
tion of  the  "pound  sterling." 

Antiquaries  and  critics  are  greatly  divided  in  their 
opinion  as  to  the  origin  of  the  word  sterling.  One  writer 
attributes  it  to  the  Castle  of  Striveling,  or  Sterling,  in 
Scotland,  where  a  small  coin  was  anciently  struck  which 
it  is  supposed  gave  the  name  to  all  the  rest. 

We  must  now  explain  how  a  certain  weight  of  gold 
bullion  has  come  in  modern  times  to  be  called  a  pound. 
The  original  measure  of  value  in  England,  France  and 
Scotland  was  the  pound  weight  of  silver  bullion.  No 
coin,  however,  of  this  actual  weight  was  ever  struck.  But 
the  pound  weight  of  silver  bullion  was  cut  into  240  pieces 
called  pence.  Twelve  of  these  pence  were  called  a  shilling 
or  solidus;  and  therefore  twenty  shillings,  or  solidi,  made 
a  pound.  These  240  pence  actually  weighed  a  pound  of 
bullion. 

Now  let  us  denote  the  pound  weight  of  metal  in  the 
form  of  bullion  by  the  symbol — ib.,  and  the  pound  weight 
of  metal  in  the  form  of  coin  by  the  symbol — £.  Then  we 
have — 

240  pence  =20  shillings=  iiJ'  =  iftt. 

It  is  perfectly  clear  that  if  the  pound  weight  of  bullion 
were  divided  into  a  greater  number  of  pieces  than  240, 
that  greater  number  would  still  be  equal  to  the  pound 
weight ;  and  if  we  denoted  by  the  symbol  £,  240  pieces  or 
pence,  irrespective  of  their  weight,  we  should  have  the  iBb, 
equal  to  £\  +  the  number  of  pieces  above  240. 

Now  this  is  what  has  been  done  in  the  coinages  of  all 


08S478 


38  HISTORY    OF    THE 

the  three  countries  before  mentioned.  The  sovereigns  of 
these  countries  were  frequently  in  want  of  money  to 
pursue  their  various  extravagances,  and  as  they  could  not 
make  more  money  they  adopted  the  fraudulent  and  surrep- 
titious plan  of  cutting  the  pound  weight  of  bullion  into  a 
greater  number  of  pieces,  but  they  still  called  them  by  the 
same  name.  By  this  means  they  gained  an  illusory  aug- 
mentation of  wealth.  As  they  could  not  multiply  the 
quantity  of  the  metal,  they  at  various  periods  falsified  the 
certificate.  While  they  still  called  them  by  the  same 
name,  they  diminished  the  quantity  of  bullion  in  them, 
and  so  coined  more  than  the  original  number  of  pence 
out  of  a  pound  weight  of  bullion. 

The  consequence  of  this  was  very  manifest,  as  240 
pence  were  still  called  a  pound,  or  £,  in  money,  whatever 
their  weight  was,  and  as  more  than  240  pence  were  coined 
out  of  a  pound  weight  of  bullion,  the  £,  or  pound  of  money 
in  coin,  began  to  vary  from  the  ft.,  or  pound  weight  of 
bullion.  Edward  I.  began  this  evil  practice  in  1300,  when 
he  coined  243  pence  out  of  the  pound  Avcight  of  bullion. 
Subsequent  sovereigns  followed  the  same  evil  example  ; 
and  this  falsification  of  the  certificate  increased  till  in  the 
time  of  Elizabeth  no  less  than  744  pence,  or  62  shillingsT" 
were  coined  out  of  the  pound  weight  of  bullion.  Then  we 
have  manifestly— 

744  pence=62  shillings=;{^3  2.y==ilb. 

As  there  are  twelve  ounces  in  the  pound  weight  of 
bullion,  it  is  seen  that  each  ounce  was  coined  into  sixty- 
two  pence,  and  hence  as  the  value  of  bullion  is  measured 
by  the  ounce,  the  mint  price  of  silver  was  said  to  be  55.  2d. 
the  ounce. 


BANK    OF    ENGLAND.  39 

In  the  reign  of  Charles  II.,  the  African  Company 
brought  home  a  large  quantity  of  gold  from  the  Guinea 
coast.  He  had  it  coined  into  pieces  called  guineas,  which 
were  intended  to  represent  the  £,  or  twenty  shillings  in 
silver.  In  1717  Sir  Isaac  Newton,  then  Master  of  the 
Mint,  reported  to  Parliament  that  the  true  value  of  the 
guinea  according  to  the  relative  market  value  of  gold  and 
silver  at  that  time  was  20s.  8d.  A  royal  proclamation, 
however,  was  issued,  declaring  them  to  be  current  at 
twenty-one  shillings. 

Gold  and  silver  coin  were  then  made  unlimited  legal 
tender  for  debts  of  any  amount.  Gold  gradually  became 
to  be  considered  as  the  measure  of  value  in  England. 

Forty  pounds  weight  of  standard  gold  bullion  by  the 
regulations  of  the  English  mint  are  cut  into  1,869  pounds. 

The  legal  weight  of  a  sovereign  or  pound  is  five  dwts. 
3^3  grains,  containing  1 13623  grains  of  fine  gold.  Sovereigns 
which  fall  below  5  dwts.  2f  grains,  and  half-sovereigns  of 
less  than  2  dwts.  13^  grains,  cease  to  be  legal  tender. 

It  was  adopted  as  a  principle  of  law  in  1816  that  a 
nation  should  adopt  only  one  metal  as  the  legal  measure 
of  value,  and  make  any  other  that  may  be  used  subsidiary 
^nd  gold  coin  was  declared  the  only  legal  tender  to  an 
unlimited  amount,  and  the  silver  and  copper  coins  were 
intended  only  as  small  change  for  the  gold  coin. 

Banks  are  usually  divided  into  three  classes,  as  they 
are  merely  for  the  custody  or  issue  of  money,  or  for  both. 

Banks  of  Deposit.— The  first  class,  or  the  banks  of 
deposit,  are,  strictly  speaking,  those  early  banks  which 
received  money  or  valuables  for  custodjf,  and  kept  them 
in  their  coffers  till  called  for;  but  now  the  term  is  gener- 


40 


HISTORY    OF   THE 


ally  applied  to  those  establishments  that  receive  money 
from  their  customers,  and  lend  it  out  to  others  at  a  higher 
rate  of  interest. 

Banks  of  Issue.— Banks  of  issue  arc  those  that  issue 
their  own  notes  for  circulation  ;  but  as  they  likewise 
receive  deposits,  the  term  is  generally  applied  to  what 
forms  the  third  class  of  the  division.  Were  the  duties  of 
banks  limited  to  the  safe  custody  of  money,  they  would 
still  be  of  immense  advantage  to  the  public.  Every  one 
who  has  the  care  of  large  sums  of  money  knows  the  anx- 
iety that  attends  their  custody,  and  the  risks  to  which 
they  are  subjected  ;  and  hence  the  value  of  a  place  of 
security  in  which  to  lodge  them.  This  gave  rise  to  the  first 
formation  of  public  banks.  But.  were  the  money  merely 
to  lie  idly  in  the  coffers  of  the  bank,  it  is  evident  that  the 
depositor  would  not  only  not  receive  any  interest  upon  it, 
but  would  have  to  pay  for  the  trouble  and  expense  of 
keeping  it  ;  while  the  money  thus  kept  was  so  much  drawn 
from  the  trading  capital  of  the  country. 

The  advantages  of  combining  a  system  of  lending 
money  with  that  of  receiving  it  soon  became  apparent  ; 
and  banks  were  established  for  the  purpose  of  both  receiv- 
ing and  lending  money  ;  the  interest  received  on  the  sums 
being  considered  sufficient  to  cover  all  expense  connected 
with  its  management,  or  the  risk  of  losing  it.  By  this 
means,  numerous  small  sums  of  money,  which  would  have 
remained  unproductive  in  the  hands  of  individuals,  are 
collected  into  large  sums  in  the  hands  of  the  bankers,  who 
employ  it  in  granting  facilities  to  trade  and  commerce,  and 
in  this  way  increase  the  productive  capital  of  the  nation. 
Thus  a  million  of  money,  in  place  of  lying  useless  in  small 


1 


BANK    OF    HNGLAND.  41 

sums  in  the  hands  of  the  owners,  or  in  one  large   sum   in 
the  coffers  of  a  bank,  is  lent  out  to  increase  the  capital  of 
manufacturers  and  traders  ;     and  thus  the  world  is  made 
one  million  richer,  or  at  least  is  saved  from  being  one  mil- 
lion poorer.    Besides  the  money  which  a  banker  receives  in 
deposits  from  his  customers,  he  must  be  possessed  of  a 
certain  capital  of  his  own,  in  order  to  carry  on  business  ; 
and  to  insure  confidence  in  his  stability  ;   for  no  one  would  / 
lend  money  to  a  banker  if  he  knew  that  he  was  possessed  , 
of  no  capital.     The  interest  derived  from  this  capital  forms  \ 
part  of  the  profits  of  the  banker,  but  it  is  evident  that  the 
profit  in  this  case  is  not  the  same  as  that  which  he  derives 
from  trading  with  the  capital  of  others  ;    in   other  words, 
that  the  interest  is  not  greater  than  if  he  had  lent  out  his 
money  in  any  other  way   equally  safe,  and   involving  the 
same  amount  of  trouble.     The  deposits  over  and  above  a 
certain  sum  which  he  must  have  at  hand  to  meet  daily 
claims,  he  advances  in  various  ways  as  loans.     The  best 
and  safest  mode  of  employing  such  funds  is  considered  to 
be  in  the  discounting  of  good  mercantile  bills  of  exchange; 
that  is,  bills  representing  bona  fide  transactions  of  trade 
and  commerce. 

In  the  first  place,  banks  are  useful  as  places  of  secur^ 
ity  for  the  deposit  of  money.  Banking  increases  the 
productive  capital  of  a  country.  Another  advantage  con- 
ferred upon  society  by  bankers  is  that  they  make  advances 
to  persons  who  want  to  borrow  money,  when  proper"' 
security  is  presented.  Persons  engaged  in  trade  and 
commerce  are  thus  enabled  to  augment  their  capitil,  and 
consequently  their  wealth.  The  increase  of  money  in  cir- 
culation   stimulates     production.         When     bankers     arc 


I  •  HISTORY    OV   THE 

compelled  to  withhold  their  usual  accommodation,  both 
the  commercial  and  the  agricultural  interests  are  plunged 
into  extreme  distress.  Banking  also  exercises  a  powerful 
influence  upon  the  morals  of  society.  It  tends  to  produce 
honesty  and  punctuality  in  pecuniary  engagements.  It  is 
thus  that  bankers  perform  the  functions  of  public  conser- 
vators of  the  commercial  virtues.  From  motives  of  private 
interest  they  encourage  the  industrious,  the  prudent,  the 
punctual,  and  the  honest,  while  they  discountenance  the 
reckless  and  shiftless  business  man  and  speculator.  They 
hold  out  inducements  to  uprightness,  which  are  not  dis- 
regarded by  even  the  most  abandoned. 

Thompson  Mankey,  a  Director,  and  formerly  Governor 
of  the  Bank  of  England,  in  his  work  on  the  "Principles  of 
lianking,"  says: — 

"We  are  all  destined  in  this  world  to  earn  our  bread 
by  the  sweat  of  our  brow;  and  I  know  no  trade  or  calling 
in  which  high  religious  and  moral  qualities  can  be  more 
sensibly  appreciated  and  brought  to  bear  for  practical 
utility  in  our  journey  through  life  than  in  that  of  banking. 
Let  me  find  a  man  honestly  striving  to  use  his  best  talents 
and  energies  in  the  endeavor  to  discharge  his  duties  to 
the  best  of  his  ability  in  that  position  of  life  in  which  it 
has  pleased  God  to  place  him — acting  as  if  he  were  con- 
vinced that  he  can  only  succeed  by  living  a  life  based  on 
sound  religious  principles,  which  he  will  never  violate  for 
any  worldly  objects  that  may  appear  to  tempt  him  out  of 
his  path  of  duty— and  I  would  infinitely  prefer  to  deal 
with  that  man  as  a  banker,  or  trust  him  as  a  correspon- 
dent in  business  with  the  use  of  money,  than  a  man  of  the 
greatest  wealth  acquired  by  less  honest  means,  and  acting 


I5ANK    OF    F.NGLAND.  43 

as  if  he  thought  lightly  of  honesty  and  integrity.     Hon- 
esty is  a  quality  which    many  political  economists  have 
thought  deserving  of  at   least  an  equal  value  as  industry 
and  credit;  and  we  who  are  connected  with  trade  know 
how  immeasurably  superior  it  ought  to  be  esteemed  above 
every  other  qualification  for  a  good  man  of  business.     The 
old  adage    that  '  honesty  is  the  best  policy,'  should   be 
prominently  placed    up  in    the   office   of  every  banking 
establishment,  and  should  be  engraved  on  the  mind  of 
every  one  who  wishes  to  obtain  credit  amongst  capitalists." 
We  propose  to  describe,  in  a  condensed  form,  some  of 
the  most  prominent  and  other  banking  projects  which  for 
half  a  century  occupied  public  attention,  and  made  the 
task  of  founding  the  liank  of  England  conriparatively  easy 
to  the  projectors.    Many  "charity  banks"  and  Lombards,  or  i 
Lombard-houses,   now    commonly   called    pawn    brokers,  - 
were  projected. 

"The  making  transferable  all  promissory  notes  be- 
tween man  and  man,"  was  recommended  by  William  Potter 
in  his  "Key  of  Wealth." 

One  Henry  Robinson  ardently  advocated  the  creation 
of  a  Land  Bank  in  which  all  payments  above  twenty 
pounds  should  be  made  in  bank  credit;  and  that  beside 
the  principal  bank  in  London,  there  should  be  one  hun- 
dred subordinate  banks  in  different  parts  of  England,  all 
centering  in  the  said  capital  bank  of  London,  wherein,  for 
the  support  of  the  credit  thereof,  a  general  mortgage  of 
lands  was  proposed,  for  which  the  mortgager  should  have 
credit  in  bank  to  the  value  of  his  land.  The  condition  of 
such  mortgage  should  be,  either  to  pay  so  much  money, 
with  interest  at  six  per  cent,  within  a  year  from  the  day 


44  HISTORY    OF    THE 

that  bank  credit  should  any  way  fail  to  be  current,  or,  in 
default  of  such  payment,  the  said  mortgaged  lands  to  be 
forfeited  without  redemption  and  to  be  divided  amongst 
the  proprietors  of  the  credit  in  bank.  Others  proposed  a 
general  register  of  houses  and  ships  as  well  as  of  land;  a 
court  of  merchants  for  the  summary  recovery  of  all  debts; 
also  some  very  ill-judged  projects  for  uniting  into  corpora- 
tions all  merchants  trading  into  any  one  country,  for  the 
sake  of  what  they  call  "uniformity  of  trade." 

Samuel  Lamb,  one  of  the  most  eminent  London  mer- 
chants at  the  time  of  Charles  the  l-'irst,  warmly  espoused 
the  subject  of  public  banks,  and  during  the  common- 
wealth presented  an  "humble  address  to  his  Highness  the 
Lord  Trotector,"  wherein  he  described  the  great  advan- 
tages the  Hollanders  derived  from  banks,  and  the 
disadvantages  England  labored  under  in  their  absence. 
The  following  reasons,  which  were  embodied  in  the 
petition,  appear  to  us  to  be  so  prophetic  as  to  deserve  to 
be  recorded:  — 

"The  good  that  wc  may  do  ourselves  by  banks,  if 
settled  in  England,  are  many;  for  no  nation  ever  made 
use  of  them  but  they  flourished  and  thrived  accordingly. 

"  Imprimis:  they  will,  by  well  ordering  them,  bring 
back  the  gold  and  silver  which  hath  been  drained  out  of 
this  land  by  the  Hollanders'  banks,  and  by  other  princes 
raising  the  value  thereof  in  their  dominions. 

"They  will  much  increase  the  stock  of  this  land, 
which  will  wonderfully  increase  all  manner  of  trade,  and 
will  bring  in  that  excellent  transferring  trade,  and  make 
England  the  staple  of  all  foreign  commodities,  as  Holland 
is  at  this  time,  and   has  been   since   they   had   the    use   of 


BANK    OF    ENGLAND.  4  5 

banks,  who  have  nothing  considerable  of  their  own  growth 
and  manufactures,  yet  have  the  staple  of  all  commerce,  as 
a  rich  treasure  in  money  and  jewels,  all  materials  for  ship- 
ping, and  even  all  manner  of  clothing,  and  the  granary 
and  vincN'ard  of  Europe,  with  which  commodities  they 
furnish  most  countries,  and  which  England  may  also  do. 

"They  will  increase  and  much  encourage  the  fishery 
of  this  nation,  and  breed  up  in  that  emplojment  many 
thousands  of  seamen,  which  will  find  employment  in  the 
East  Indies'  Streights,  and  other  voyages  into  other  parts 
of  the  world. 

"They  will  increase  the  warlike  trading,  shipping  and 
mariners  of  this  nation,  which  will  much  strengthen  us 
against  our  enemies. 

"  They  will  also  much  increase  the  revenues  and 
customs  of  the  land  by  increasing  credit. 

"  They  will  wonderfully  employ  the  poor  of  this  land, 
and  increase  the  natural  manufacture  thereof,  and  make 
us  capable  to  buy  or  sell  at  home  or  abroad. 

"  They  will  make  the  English  capable  to  engross 
the  commodity  of  any  country,  and  withhold  it  from 
another  that  may  be  at  enmity  with  us  to  whom  the  said 
commodity  may  be  useful  to  our  prejudice,  and  also  make 
our  own  price  of  it. 

"They  will  increase  trade  in  our  plantations,  and 
cause  ships  to  be  built  in  New  England  as  good  or  better 
than  any  built  in  Holland. 

"  They  will  furnish  factors  in  England  with  credit  to 
pay  customs  and  charges  of  a  great  cargo  of  goods,  which 
may  on  a  sudden  be  conveyed  to  them;  for  many  times 
such  English  factors   may  be  of  good  estate  and  credit, 


40  HISTORY    OF   THE 

yet  have  not  always  a  great  cash  lying  by  them  for  such 
uses,  thouijh  the  Dutch  are  seldom  without  it;  therefore 
may  oftentimes  be  forced  to  strain  their  credit  to  take  up 
money  at  interest,  or  sell  all  or  part  of  such  goods  at 
under-rate  for  want  thereof,  which  may  be  a  great 
prejudice  to  themselves  and  loss  to  their  principals,  and 
is  believed  causes  many  such  great  commissions  to  be 
carried  from  the  English  and  consigned  to  the  Dutch 
residing  in  England,  to  their  great  benefit  and  advantage, 
and  loss  and  prejudice  to  the  English  nation. 

"They  will  increase  trade  in  Ireland,  which  will  peo- 
ple that  island,  and  increase   the  revenue  thereof 

"  They  will  furnish  many  young  men  with  stock  that 
have  by  their  industry  and  well-spent  time,  and  travels  in 
their  apprenticeships,  gained  good  experience  in  foreign 
traffic. 

"  They  will  preserve  many  good  men  from  failing  and 
losing  their  credit,  and  many  others,  which  trial  and 
experience  will  daily  discover;  as  quick  and  easie  paying 
bills  of  exchange,  foreign  or  domestick,  and  all  other  pay- 
ments; preventing  fraudulent  payments  in  counterfeit  or 
dipt  coyn  or  mis-telling  money;  rectifying  errors  in 
accounts  which  occasion  law  suits;  preventing  theft  and 
breaking  open  houses  where  money  is  suspected  to  be; 
and  robbing  in  the  highways  graziers,  carriers,  or  others 
that  used  to  carry  money  from  fairs  and  other  places, 
which  may  be  returned  by  assignment  in  bank.  Whereas 
now  the  several  hundreds  in  many  places  are  forced  to 
guard  such  as  carry  money  for  fear  of  their  being  robbed, 
and  such  hundreds  paying  them  the  money  they  lost,  as 
it  hath  often  fallen  out  of  late  time. 


BANK    OF    KNGLAND.  47 

"Lastly,  a  bank  with  a  certain  number  of  sufficient 
men  of  estate  and  credit,  joined  together  in  a  joynt  stock, 
being  as  it  were  the  general  cashkcepers  or  treasurers  of 
the  place  where  they  are  settled,  and  divers  others,  tend- 
ing much  to  the  tranquility  of  your  highness  and  the 
welfare  of  the  English  nation,  which,  with  your  highncss's 
favourable  encouragement,  I  shall  in  all  humility  be  ready 
to  make  known  to  you,  and  remove  any  objections  as  can 
be  alledged  in  the  premises,  and  propound  a  way  how  it 
may  be  effected,  and  the  evils  remedied  and  prevented, 
being  unwilling  to  bury  the  talent  in  a  napkin  which  it  hath 
pleased  the  Giver  of  all  blessings  in  Hisgreat  goodness  and 
mercie  to  bestow  upon  me,  hoping  that  I  shall  not  offend 
by  tendering  this  with  my  best  services  to  your  high- 
ness." 

It  appears  by  the  Rolls  of  Parliament,  that,  two  years 
after  the  presentation  of  the  above  address  to  Cromwell, 
Samuel  Lamb  petitioned  the  House  of  Commons  on  the 
subject  of  his  proposal  for  a  bank  ;  and  that  on  Friday,  the 
4th  of  March,  1658,  the  petition  was  referred  to  a  com- 
mittee ;  but  it  does  not  subsequently  appear  that  any 
report  was  made  thereon,  or  any  steps  taken  to  forward 
his  views. 

In  the  year  165 1,  there  appeared  the  following  "  Hum- 
ble Proposal  to  the  honorable  Council  of  Trade,  and  all 
Merchants  and  others  who  desire  to  improve  their 
Kstates,"  which,  if  enacted  by  Parliament,  "  would,  as  with 
due  submission  is  conceived,  conduce  to  advance  trade, 
imploy  the  poor,  diminish  interest,  improve  publique  rev- 
enue, prevent  the  cruelty  of  creditors  and  the  injustice  of 
debtors,  tending  likewise  speedily  to  promote  the  enter- 


48  HISTORN    OF   THE 

prise  discovered  in  a  late  treatise,  entitled  '  The  Key  of 
WValth"" 

This  proposal  had  reference  to  a  bank  of  credit,  in 
which  bills  of  exchange  were  to  be  the  principal  circulat- 
ing medium. 

Ill  the  year  16C5,  a  very  elaborate  account  of  the 
*•  Offjce  of  Credit "  appeared.  The  author  endeavors  to 
remove  what  he  calls  two  vulgar  errors,  viz  :  "That  credit 
in  bank  is  only  current  because  men  can  have  money 
when  they  will;"  and  further  "that  without  money  no 
trade  can  be  managed."  At  the  end  of  the  work  there  is 
a  summary  of  the  wliole  ;  the  author's  main  object,  as  he 
himself  states,  is  satisfactorily  to  ansu  er  the  objections, 
"that  men  will  have  money  and  not  credit." 

Scheme  followed  scheme  for  the  establishment  of  a 
solid  bank,  but  none  met  with  royal  favor  and  aid  from 
Parliament  until  William  Paterson  made  public  his  plans 
for  the  Bank  of  England,  which  is  described  at  length  in 
the  following  chapter. 


CHAPTER   III. 


FOUNDATION  AND  EARLY  HISTORY  OF  THE  BANK  OF   ENGLAND. 

Wkf  the  Bank  zvas  Established — Origin  of  the  Bank — 
The  Governor  and  Company  of  the  Batik  of  Etigland — 
History  of  William  Paterson,  its  Founder — He  dies 
Unhonored  and  Neglected — Prophets  ivJio  Predicted 
Financial  Ruin — "  TJie  Old  Lady  of  Threadneedle 
Streef^ — Paterson  and  his  Ill-Fated Darien  Scheme — 
Present  Condition  of  the  Bank —  TJie  Policy  of  the  Bank 
Assailed  by  the  Public — Hoiv  the  Bank  is  Officered — 
The  Batik  Charter — Hoiv  it  Reads — Restrictions, 
Impositions  and  Demands — Buying  Property  from 
atid  Lending  Money  to  the  Crown — Suspending  Pay- 
ment of  Notes — Assistance  from  the  Government 
Averts  a  Failure — Capital  Increased — Confidence 
Restored — Length  of  Original  Charter. 


The  important  position  assumed  by  England  towards 
the  middle  of  the  seventeenth  century,  rendered  the 
absence  of  a  national  bank  somewhat  surprising.  The 
nation  was  rapidly  increasing  in  commercial  and  political 


50  HISTORY   OF   THE 

greatness,  and  although  several  projects  were  issued  for 
banks,  the  necessity  for  their  formation  not  being  abso- 
lutely felt  the  proposals  were  dismissed  without  much 
attention. 

There  were  many  reasons  for  the  establishment  of  a 
national  bank.  It  was  necessary  for  the  sake  of  a  secure 
paper  currency.  It  was  required  for  the  support  of  the 
national  credit  and  reducing  the  rate  of  interest.  In  1546, 
the  payment  of  interest  had  been  rendered  legal,  and 
fixed  at  ten  per  cent.  In  1624  the  rate  was  reduced  to 
eight  per  cent.  The  rate  of  interest,  which  was  higher 
in  England  than  abroad,  rendered  trade  comparatively 
disadvantageous  to  England. 

Sixteen  years  previous  to  the  establishment  of  the 
Bank  of  England,  proposals  and  schemes  for  a  national 
bank  were  discussed,  but  none  were  considered  practi- 
cable, although  one  or  two  were  tried.  i 

A  very  curious  account  of  the  origin  of  the  Bank  of 
England  is  to  be  found  in  a  pamphlet  printed  in  17 17, 
called  the  "  Conferences  on  the  Public  Debts,  by  the 
Wednesday's  Club  in  Friday  Street."  The  discussions 
among  the  members  of  this  society  excited  considerable 
public  attention  ;  William  Paterson,  who  was  evolving  a 
scheme  for  a  bank,  belonged  to  this  club,  the  members  of 
which  presented  a  petition  to  King  William,  setting  forth 
among  other  things  the  great  advantages  of  a  public  bank — 
but  at  that  time  their  proposal  was  received  with  suspicion. 

Paterson  anticipated  that  the  government  would 
readily  incorporate,  with  certain  powers  ^rid  privileges, 
such  parties  as  would  advance  a  considerable  sum  of 
money  by  way  of  loan  to  meet  the  public  exigencies.    Yet, 


BANK   OF   ENGLAND.  51 

as  he  himself  relates  in  the  account  of  his  transactions  in 
relation  to  the  Bank  of  England,  printed  in  1695,  that  he 
found  it  much  more  difficult  to  get  it  consented  to  by  the 
Privy  Council,  in  order  to  be  brought  into  Parliament,  than 
he  had  at  first  apprehended. 

The  Bank  of  England,  which  has  long  been  the  prin- 
cipal bank  of  deposit  and  circulation  in  Great  Britain,  and 
indeed  in  Europe,  was    founded   in    1694.     The    govern- 
ment  being   at   that   time    much    distressed    for   money, 
brought  about   in   great  measure   froin    the  defects   and 
abuses  in  the  system  of  taxation,  and  partly  from  the  diffi- 
culty of  borrowing  money   on    account  of  the   supposed 
instability  of  the  government,  the  Bank  of  England  actu- 
ally grew  out  of  a  loan  to  the  government  of  ;^i, 200,000 
for  the  public  service.     The  subscribers,  besides  receiving 
eight  per   cent,  on    the   sum   advanced   as   interest,  and 
;j^4,ooo  a  year  as  the  expense  of  management,  in  all;{^ioo,- 
000  a  year,  were  incorporated  into  a  society  denominated 
the  "Governor  and  Company  of  the  Bank  of  England." 
Many   consider  that   to   the   war  with   France,  and   the 
extreme  difficulty  the  government  experienced  in  raising 
funds  for  the  conduct  of  the  war,  is  the  institution  of  this 
giant  monopoly  due.     The  idea  of  the  Bank  of  England 
'    originated  solely  with  William  Paterson,  a  merchant  of 
London,  a  brainy  Scotchman.     Paterson  readily  saw  that 
the  government,  which  had  been  paying  interest   at  the 
rate  of  from  20  to  40  per  cent,  per  annum,  would,  without 
much  hesitation,  grant   exclusive   and   almost   unlimited 
privileges  to  such  parties  as  would  in  turn  furnish  it  with 
a  fixed  and  permanent  loan,  at  a  reasonable  rate  of  inter- 
est.    The   plan,  being  brought   to  the  attention  of  the 


52  HISTORV   OF  THE 

King,  was  submitted  to  the  Privy  Council,  when  the 
details  were  completed,  and  it  was  laid  before  Parliament. 
Here  it  met  with  the  violent  opposition  of  a  formidable 
party.  Nevertheless,  the  bill  was  finally  carried  by  the 
government,  and  on  April  25,  1694,  became  a  law,  from 
which  date  the  original  charter  was  granted  for  eleven 
years. 

Of  William  Paterson,  the  author  of  the  Bank  of  En- 
gland, but  little  is  known.  It  is  perhaps  unfortunate  that 
no  biography  of  this  remarkable  man  exists.  As  the  pro- 
jector of  the  Bank  of  England,  he  deserves  notice.  He 
was  born  in  Traillflat,  Stotland,  in  1658,  and  was  educated 
for  the  ministry.  A  speculative,  as  well  as  an  adventur- 
ous man,  he  was  the  soul  of  the  ill-fated  Darien  expedi- 
tion, and  losing  all  returned  to  England  to  die  neglected, 
unhonored  and  ignored  by  his  former  business  associates. 

The  name  of  the  founder  of  the  Bank  of  England  was 
not  upon  the  list  of  directors  only  for  the  year  of  its  estab- 
lishment in  1694.  The  facts  which  led  to  his  departure 
from  the  honored  part  of  director  are  difficult  to  learn  ; 
but  it  is  not  at  all  improbable  that  Paterson  was  too  daring 
and  speculative  for  those  with  whom  he  was  joined  in  com- 
panionship. One  writer  says  :  "The  friendless  Scot  was 
tricked  out  of  the  post  and  the  honors  he  had  earned.'' 
Sir  John  Dalrymple  remarks :  "  The  persons  to  whom 
Paterson  applied  made  use  of  his  ideas,  took  the  honor 
and  credit  to  themselves,  and  absolutely  neglected  him 
afterwards." 

Paterson  found  it  more  difficult  to  procure  consent 
than  he  anticipated,  and  all  those  who  feared  an  invasion 
of  their  interests  were  arrayed  against  it.     The  goldsmith 


BANK    OF    ENGLAND.  53 

foresaw  the  destruction  of  his  monopoly,  and  he  opposed 
it  from  self  interest.  The  Tory  foresaw  an  easier  mode  of 
gaining  money  for  the  government  he  approved.  The 
usurer  foresaw  the  destruction  of  his  oppressive  extortion, 
and  he  resisted  it  with  the  vigor  of  his  craft.  The  rich 
man  foresaw  his  profits  diminished  on  government  con- 
tracts, and  he  vehemently  and  virtuously  opposed  it  on 
public  principles.  The  outcries  were  hard  and  long,  but 
to  no  avail.  Prophets  are  in  their  graves  who  predicted 
the  early  downfall  of  the  Bank  of  England.  The  sup- 
porters claimed  that  the  bank  would  rescue  the  nation 
out  of  the  hands  of  extortioners,  lower  interest,  raise  the 
value  of  land,  renew  public  credit,  extend  circulation, 
improve  commerce,  and  connect  the  people  more  closely 
with  the  government. 

As  previously  stated  there  were  many  reasons  why  a 
national  bank  should  be  established.  To  relieve  the 
moneyless  government  was  one  of  the  objects  of  the 
founder  of  the  Bank  of  England,  and  though  his  motive 
was  not  wholly  unselfish  nor  unconditionally  patriotic; 
though  he  was  bitterly  opposed  and  relentlessly  assailed 
by  usurers,  shylocks  and  others  who  had  profited  by 
extortionate  discounts  and  the  general  helplessness  of  the 
government,  and  by  a  large  and  demonstrative  class  who 
declared  that  such  a  bank  would  at  once  become  a  danger- 
ous monopoly,  and  engross  the  whole  money  of  the 
kingdom,  and  that  it  would  be  arbitrary  in  its  powers;  but 
the  indomitable  William  Paterson  not  only  obtained  a 
charter,  but  was  very  soon  justified  in  affirming  that  the 
bank  had  spared  the  ministers  their  humiliating  proces- 
sions into  London  to  secure  loans  at  ten  and  twelve  per 


54  HISTORY    OF   THE 

cent,  interest;  given  life  and  currency  to  double  or  treble 
the  value  oi"  its  capital  in  other  branches  of  public  credit; 
and  it  was  patent  to  all  that  the  bank  was  the  principal 
means  of  the  success  of  the  campaign  in  1695,  particularly 
in  reducing  Namur,  the  first  step  towards  the  peace  of 
1697. 

This  man,  William  Paterson,  who  founded  the  Bank 
of  England,  and  also  the  Bank  of  Scotland,  was  a  dreamer 
of  a  lofty  and  generous  nature  and  large  ideas,  which 
sometimes  carried  him  into  the  impracticable,  though 
usually  there  was  a  substratum  of  utility  to  what  seemed 
to  be  the  least  substantial  of  his  schemes.  It  was  Pater- 
son who  led  the  Daricn  expedition,  that  wild  attempt  to 
establish  another  East  India  Company  and  to  found  an 
Arcadia  on  the  American  isthmus.  On  the  26th  of  July, 
1698,  four  years  after  the  establishment  of  the  bank, 
twelve  hundred  persons,  many  of  whom  were  of  high  birth 
and  influence,  embarked  with  Paterson  from  Lcith,  and 
in  due  time  reached  the  site  of  their  proposed  colony. 
Paterson  had  purchased  the  land  from  its  Indian  posses- 
sors, and  proclaimed  as  the  two  leading  principles  of  his 
commonwealth :  freedom  of  faith  and  freedom  of  trade  to 
all  sects  and  to  all  nations.  His  generosity  was  unbound- 
ed, and  when  the  colony  seemed  most  likely  to  succeed, 
he  voluntarily  surrendered  the  large  share  of  the  profits 
which  belonged  to  him. 

The  adventurers  were  first  charmed  with  their  new 
home,  but  their  subsequent  fate  was  something  deplorable. 
They  fell  victims  to  famine,  disease  and  the  attacks  of  the 
Spaniards.  Utopia  was  once  again  laid  waste,  and  of  the 
number  which  left  Leith  only  thirty  ever  again  set  foot  in 


BANK   OF    ENGLAND.  55 

their  native  land.  One  of  these  was  Paterson,  of  whom 
a  letter  of  the  period  said:  "The  colonists  give  him  due 
praise,  for  he  hath  been  diligent  and  true  to  the  end." 

The  chivalrous  and  high-minded  man  was  followed 
by  misfortune.  The  persons  to  whom  he  applied  made  use 
of  his  ideas;  were  civil  to  him  for  awhile  and  then  abso- 
lutely neglected  him.  Paterson  was  a  man  prolific  of  good 
ideas  but  utterly  unable  to  direct  them  for  his  own  gain. 
He  always  took  scheming  men  into  his  confidence,  which 
of  course  ruined  him. 

The  Act  of  Parliment  by  which  the  bank  was  estab- 
lished, is  entitled:  "An  Act  for  granting  to  their 
Majesties,  several  duties  upon  tonnage  of  ships  and  vessels, 
and  upon  beer,  ale  and  other  liquors,  for  securing  certain 
recompenses  and  advantages  in  the  said  Act  mentioned, 
to  such  persons  as  shall  voluntarily  advance  the  sum  of 
^1,500,000  towards  carrying  on  the  war  with  France." 
After  a  variety  of  enactments  relative  to  "  the  duty  upon 
tonnage  of  ships  and  vessels,  and  upon  beer,  ale,  and  other 
liquors,"  the  Act  authorizes  the  raising  of  ^1,200,000  by 
voluntary  subscription,  the  subscribers  to  be  formed  into 
a  corporation,  and  be  styled:  "The  Governor  and  Com- 
pany of  the  Bank  of  England."  The  sum  of  ,-^300,000  was 
also  to  be  raised  by  subscription,  and  the  contributors,  of 
which  there  were  but  1,300,  to  receive  instead,  annuities 
for  one,  tv/o,  or  three  lives.  Towards  the  ;^  1,200,000  no 
one  person  was  to  subscribe  more  than  ;^io,ooo  before  the 
first  day  of  July  next  ensuing,  nor  at  any  time  more  than 
;^20,ooo.  The  corporation  were  to  lend  their  whole 
capital  to  the  Government,  for  which  they  were  to  receive 
interest  at  the  rate  of  8  per  cent,  per  annum,  and  ^4,000 


56  HISTORY   OF   THE 

per  annum  for  management;  being  ^100,000  per  annum 
in  the  wliolc.  They  were  not  allowed  to  borrow  or  owe 
more  than  the  amount  of  their  capital  ;  and  if  they  did  so, 
the  individual  members  became  liable  to  the  creditors,  in 
proportion  to  the  amount  of  their  stock.  They  were  not 
to  trade  in  any  "goods,  wares,  or  merchandise  whatsoever;" 
but  they  were  allowed  to  deal  in  bills  of  exchange,  gold  or 
silver  bullion,  and  to  sell  any  goods,  wares,  or  merchan- 
dise, upon  which  they  had  advanced  money,  and  which 
had  not  been  redeemed  within  three  months  after  the 
time  agreed  upon.  The  whole  subscription  having  been, 
filled  in  ten  days,  a  charter  was  issued  on  the  27th  day  of 
July,  1694.  The  management  of  the  corporation  was 
intrusted  to  a  Governor,  a  Deputy  Governor,  and  twenty- 
four  directors,  all  elected  annually,  and  all  subjects  of 
England,  the  Governor  being  required  to  have  at  least 
;^4,ooo  of  the  capital  stock  of  the  bank  in  his  own  name, 
the  Deputy  Governor  at  least  ;!^3,ooo,  and  each  Director 
jQ2,ooo.  When  the  subscription  was  complete  the  sum 
was  handed  into  the  Exchequer,  and  the  bank  procured 
from  other  quarters  the  funds  which  it  required  for  the 
transaction  of  its  current  business. 

The  current  business  at  the  foundation  of  the  bank 
was  not  large,  and  all  of  it  was  done  in  one  medium  sized 
room.  To-day  it  is  the  most  extensive  banking  institu- 
tion in  the  world.  It  employs  over  one  thousand  clerks, 
and  its  buildiVigs  cover  over  eight  acres  of  ground.  But 
from  its  inception  to  the  present  day  it  has  manifestly 
held  up  its  head  through  all  vicissitudes,  and  has  been 
inseparably  connected  with  the  fortunes  of  the  English 
government.     At  times  it  has  been  a  supplicant,  then  a 


BANK    OF    ENGLAND.  57 

dictator,  nurtured  by  Halifax,  bullied  by  Walpole  and 
coaxed  by  Pitt.  If  it  has  not  always  been  generous  in 
times  of  adversity,  it  has  been  prudent,  and  its  influence 
has  been  against  chimeras  and  reckless  speculation  ;  and 
because  it  has  not  in  all  seasons  of  commercial  distress 
been  willing  to  play  the  part  of  benefactor,  it  has  been 
assailed  by  scribblers  and  disappointed  men  to  such  an 
extent  that  the  titles  of  their  choleric  outbreaks  cover 
some  thirty  pages  of  the  British  Museum  Catalogue. 

"The  Old  Lady  of  Threadneedle  Street,"  a  cant  name 
for  the  Bank  of  England,  which  is  situated  in  Thread- 
needle  street,  is  a  synonym  of  strength  and  security 
throughout  the  civilized  world.  Its  notes  are  as  good  as 
gold  in  any  community,  and  a  Bank  of  England  note 
stands  at  par  in  the  wilds  of  Africa  even  as  it  does  in  the 
City  of  London.  This  institution  is  regarded  with  pride, 
^not  only  by  the  English  but  by  every  man  or  woman  who 
speaks  that  language,  and- is  regarded  with  awe  and  rev- 
erence by  financiers  and  intelligent  people  in  all  parts  of 
the  world. 

The  present  capital  and  surplus  of  the  Bank  of  England 
is  /^S6,yo4,ySi.  The  capital  is  ;!^I4, 5 53,000.  p/^16,200,000 
is  now  issued  by  he  bank  on  securities.  Debt  of  the 
government  to  the  bank  is  ,7^11,015,100;  the  bank  also 
holds  government  securities  for  ;^5, 184,900.  Shares  of 
Bank  of  England  are  worth  ^315.  The  dividends  for  the 
year  ending  Oct.  5,  1888,  were  at  the  rate  of  ;!/79f  percent. 

On  the  first  of  January,  1695,  the  bank  commenced 
active  operations,  although  open  and  preparing  for  work 
since  the  preceding  July. 

On  the  19th  of  January,    same  year,  a  petition  from 


58  HISTORY    or   THE 

several  merchants  and  traders  of  the  city  of  London,  on 
behalf  of  themselves  and  others,  was  presented  to  the 
IIq'usc  of  Commons,  setting  forth:— "That  by  an  Act  made 
the  las't  session  of  this  Parliament,  for  granting  to  their 
Majesties  a  duty  upon  the  tonnage  of  ships,  etc.,  and  by 
virtue  of  their  Majesties'  letters  patent  in  pursuance  of 
the  said  Act,  a  corporation  of  the  Governor  and  Company 
of  the  Bank  of  England  is  established  to  receive  and  man- 
age the  sum  of  ;^  1,200,000;  which  said  bank,  as  the  same 
is  and  may  be  managed,  is  ruinous  and  destructive  to 
trade  in  general,  injurious  to  his  Majesty's  revenues,  pre- 
judicial to  the  lands  and  manufactures  of  this  nation,  and 
is  only  a  private  advantage  to  the  said  corporation." 

This  petition  was  taken  into  consideration  on  January 
22,  1695,  when  the  petitioners,  together  with  the  governor 
and  directors  of  the  bank,  attended  the  House  of  Commons, 
and  were  informed  that  their  petition  could  not  be  re- 
ceived. This  decision  of  the  House  of  Commons  was 
considered  conclusive  as  to  the  degree  of  protection  which 
the  bank  might  calculate  upon  receiving  from  the  govern- 
ment ;  but  it  had  the  effect  of  causing  the  publication  of 
sharp  and  bitter  animadversions  upon  its  management, 
and  of  the  retirement  of  several  of  the  directors. 

In  granting  the  charter  for  the  Bank  of  England,  Par- 
liament declared  amongst  other  things,  that  the  manage- 
ment shall  be  "  capable  in  law,  to  purchase,  enjoy,  and 
retain  to  them  and  their  successors,  any  moneys,  lands, 
rents,  tenements,  and  possessions  whatsoever  ;  and  to 
purchase  and  acquire  all  sorts  of  goods  and  chattels  what- 
soever, wherein  they  are  not  restrained  by  Act  of  Parlia- 
ment ;  and  also  to  grant,  demise,  and  dispose  of  the  same. 


BANK    OF    ENGLAND.  Fy^) 

"  That  the  management  and  government  of  the  cor- 
poration be  committed  to  the  governor  and  twenty-four 
directors,  who  shall  be  elected  between  the  25th  of  March 
and  the  25th  of  April  of  each  year,  from  among  the  mem- 
bers of  the  company  duly  qualified. 

"That  no  dividend  shall  at  any  time  be  made  by  the 
said  governor  and  company,  save  only  out  of  the  interest, 
profit,  or  produce  arising  by,  or  out  of  the  said  capital 
stock,  or  fund,  or  by  such  dealing  as  is  allowed  by  Act  of 
Parliament. 

"  The  governor,  deputy  governor  and  directors  must 
be  natural  born  subjects  of  England;  or  naturalized  sub- 
jects ;  they  shall  have  in  their  own  name  and  for  their 
own  use  capital  stock  of  the  Bank  of  Enc^land  to  the  follow- 
ing amount  :  The  governor,  at  least  ^4,000,  deputy  gov- 
ernor ^3,000,  and  director  ^2,coo. 

"  That  thirteen  or  more  of  the  said  governors  and 
directors  (of  which  the  governor  or  deputy  governor 
must  be  ahvays  one),  shall  constitute  a  court  of  directors, 
for  the  management  of  the  affairs  of  the  company,  and  for 
the  appointment  of  all  agents  and  servants  which  may  be 
necessary,  paying  them  such  salaries  as  they  may  con- 
sider reasonable. 

"  Every  elector  must  have,  in  his  own  name  and  for 
his  own  use,  ;^50O  or  more  capital  stock,  and  can  only  give 
one  vote.  He  must,  if  required  by  any  member  present, 
take  the  oath  of  stock,  or  the  declaration  of  stock,  in  case 
he  may  be  one  of  the  people  called  Quakers. 

"  Four  general  courts  shall  be  held  in  every  year,  in 
the  month  of  September,  December,  April  and  July.  A 
general  court  may  be  summoned  at  any  time,  upon   the 


(iU  HISTORY    OF   THE 

requisition  of  nine  proprietors  duly  qualified  as  electors. 
The  majority  of  electors  in  general  courts  have  the  power 
to  make  and  constitute  by-laws  and  ordinances  for  the 
government  of  the  corporation,  provided  that  such  by-laws 
and  ordinances  be  not  repugnant  to  the  laws  of  the  King- 
dom." 

•Armed  with  this  authority  from  the  government,  the 
Bank  of  England  commenced  business  on  July  27,  1694. 
The  applications  for  stock  in  the  new  enterprise  were 
numerous,  and  the  projectors  were  thereby  enabled  to 
select  first-class  men  for  stockholders  and  officers.  The 
bank  immediately  issued  notes,  none  of  which  v/crc,  how- 
ever, of  a  smaller  denomination  than  i^20  sterling,  and 
commenced  discounting  bills  of  exchange  at  rates  varying 
from  3  to  6  per  cent.,  distinction  being  made  in  favor  of 
persons  who  used  the  bank  as  a  place  of  deposit. 

The  Bank  of  England  had  not  issued  any  notes  for 
less  than  ;^20  previously  to  1759,  when  it  commenced  the 
issue  of  i^io  notes  ;  but  the  country  bankers  put  in  circu- 
lation notes  for  such  small  sums  that  Parliament  enacted 
in  1775,  that  none  should  be  issued  for  less  than  £1.  In 
1777  this  minimum  limit  was  further  raised  to  ^^,  but  in 
spite  of  this  restriction  the  number  and  the  amount  of  the 
issues  of  the  country  bankers  soon  became  dangerously 
multiplied. 

The  Bank  of  England  is  prohibited  by  law  from 
engaging  in  any  sort  of  commercial  undertaking,  other 
than  dealing  in  bills  of  exchange,  and  gold  and  silver.  It 
is  authorized  to  advance  money  upon  the  security  of  goods 
or  merchandise  pledged  to  it,  and  to  sell  by  public  auction 
such  goods  as  are  not  redeemed  within  a  specified  time. 


•    BANK   OF    ENGLAND.  Gl 

There  was  virtually  no  end  of  Parliamentary  tinker- 
ing with  the  new  bank,  and  in  the  latter  part  of  the  year 
the  corporation  was  organized  it  was  enacted  by  statute 
that  "the  bank  shall  not  deal  in  any  goods,  wares,  or  mer- 
chandise (except  bullion),  or  purchase  any  lands  or  reve- 
nues belonging  to  the  Crown,  or  advance,  or  lend  to  their 
Majesties,  their  heirs  or  successors,  any  sum  or  sums  of 
money,  by  way  of  loan  or  anticipation  on  any  part  or 
parts,  branch  or  branches,  fund  or  funds  of  the  revenue, 
now  granted  or  belonging,  or  hereafter  to  be  granted  to 
their  Majesties,  their  heirs  and  successors,  other  than  such 
fund  or  funds,  part  or  parts,  branch  or  branches  of  the  said 
revenue  only  on  which  a  credit  of  loan  is,  or  shall  be 
granted  by  Parliament."  The  foregoing  Parliamentary 
injimction  interfered  with  a  profitable  business  the  bank 
had  built  up  with  certain  titled  dignitaries. 

In  1697  the  government  caused  to  have  enacted  a  bill 
that  was  regarded  with  great  favor  by  the  bank.  It  was, 
"that  the  common  capital,  or  the  principal  stock  of  the 
Bank  of  England,  and  also  the  real  fund  of  the  Governor 
and  Company,  or  any  profit  or  produce  to  be  made  thereof, 
or  arising  thereby,  shall  be  exempted  from  any  rates, 
taxes,  assessments,  or  impositions  whatsoever  during  the 
continuance  of  the  bank  ;  that  all  the  profit,  benefit  and 
advantage  from  time  to  time  arising  out  of  the  manage- 
ment of  the  said  corporation,  shall  be  applied  to  the  uses 
of  all  the  members  of  the  said  association  of  the  Governor 
and  Company  of  the  Bank  of  England,  ratably  and  in  pro- 
portion to  each  members'  part,  share,  and  interest  in  the 
common  capital  and  principal  stock  of  the  said  Governor 
and  Company  hereby  established." 


G2  HISTORY    OF   THE 

In  1696,  during  the  great  rccoinage,  the  bank  was 
involvetl  in  numerous  difficulties,  and  was  even  compelled 
to  suspend  payment  of  its  notes,  which  had  fallen  as.  low 
as  20  per  cent,  below  par.  Owing,  however,  to  the  judic- 
ious conduct  of  the  directors,  and  tlic  prompt  assistance 
of  the  government,  the  bank  got  over  the  crisis.  Had  it  not 
been  for  the  aid  of  the  government  the  bank  would  have 
succumbed  to  the  strain  and  passed  out  of  existence.  It  was 
at  this  time  judged  expedient,  in  order  to  place  it  in  a  sit- 
uation the  better  to  withstand  any  adverse  circumstances 
that  might  afterwards  occur,  to  immediately  increase  the 
capital  from  ^1,200,000  to  ^2,201,171.  This  increase  in- 
spired confidence  with  the  public  in  the  integrity,  solvency 
and  judicious  management  of  the  bank,  which  evinced 
itself  in  many  ways.  The  increase  in  capital,  among  other 
things,  had  the  effect  within  a  few  months  of  causing  the 
stock  not  only  to  recover  a  discount  of  from  40  to  50  per 
cent,  but  to  sell  at  a  premium  of  12  percent. 

The  charter  of  the  Bank  of  England  enumerates  at 
some  length  the  fundamental  principles  of  the  corpora- 
tion, and  displays  in  the  manner  in  which  it  is  drawn  up,  a 
considerable  extent  of  knowledge  of  commercial  affairs. 
Instead,  however,  of  obtaining  exclusive  privileges  of  trad- 
ing, which  a  century  before  would  have  been  an  object 
of  ambition  with  a  society  of  merchants,  the  bank  was 
restricted  to  the  dealing  in  bills  of  exchange  and  in  gold 
and  silver.  It  was  prohibited  from  taking  part  in  any 
mercantile  concern  ;  but  it  was  authorized  to  make  ad- 
vances on  the  security  of  merchandise  lodged  with  it,  or 
pledged  to  it  by  written  documents.  The  latter  descrip- 
tion of  business,  it  was  thought,  would  form  the  principal 


BANK    OF    ENGLAND.  C3 

source  of  profit.  The  wisdom  of  the  founders  of  the  bank 
has  long  since  been  apparent,  but  William  Paterson,  who 
was  the  originator  and  prime  mover  in  its  organiza- 
tion, was  brushed  aside  by  unscrupulous  associates  and 
dethroned  of  the  honor  really  due  him.  The  Bank  of 
England,  however,  stands  to-day  a  monument  to  Patcr- 
son's  greatness. 


CHAPTER    IV. 


HISTORY  OF  RENEWALS,  DEBTS,  AND  PANICS. 

Advaucifig  Money  to  the  Government — Hozv  the  Bank 
Receives  Pay  from  the  Government — Persecution — 
The  "  Dead  Weight " —  Table  of  Renezvals  of  Charter, 
with  Capital,  Debt  and  Conditions  of  Renewals — 
An  Explanation  by  an  Ex-Governor  of  the  Baiik 
— Amount  of  Loans  to  the  Government — Present 
Capital  of  the  Bank  of  England — A  Panic  Quieted 
by  a  Novel  Method — Merchants  Come  to  the  Bank's 
Rescue —  The  Bank  A  t tacked  by  Rioters — Solidity  of 
the  Bank  of  England. 


The  charter  of  the  Bank  of  England,  when  first  grant- 
ed in  1694,  was  to  continue  for  eleven  years  certain,  or 
till  a  year's  notice  after  the  first  of  August,  1705. 


J 


BANK    OF    ENGLAND.  65 

The  charter  was  further  prolonged  in  1697.  In  1708, 
the  bank  having  advanced  ^400,000  for  the  public  service, 
without  interest,  the  exclusive  privileges  of  the  corpora- 
tion were  prolonged  till  1733.  And  in  consequence  of 
various  advances  made  at  different  times,  the  exclusive 
privileges  of  the  bank  have  been  continued,  with  the 
proviso  that  they  might  be  cancelled  on  a  year's  notice. 

In  addition  to  the  permanent  debt  of  the  government 
to  the  bank,  the  latter  contracted  with  the  former  on 
March  20,  1823,  to  j)ay  at  stated  intervals  between  1823 
and  1828  certain  pensions  and  annuities  arising  out  of  the 
then  recent  wars,  amounting  to  ^13,089,419.  This  is 
termed  the  "dead  weight."  In  consideration  of  this  the 
bank  was  to  receive  from  the  government  an  annuity  of 
;^585,740  for  44  years. 

Although  the  necessities  of  the  State  contributed  to 
the  establishment  of  the  Bank  of  England,  they  were,  at 
intervals  of  every  few  years,  compelled,  after  making  a 
feeble  resistance,  to  purchase  the  continuance  of  the  priv- 
ileges on  exceedingly  onerous  terms.  The  history  of  the 
seven  renewals  of  the  charter  between  1694  and  1800,  and 
of  the  accordance  of  permission  to  increase  the  capital  of 
the  bank,  is  one  continuous  record  of  exactions. 

The  bank,  as  a  condition  of  State  patronage,  v/as  on 
each  successive  occasion  forced  to  increase  its  loans  to 
the  Government  at  low  rates  of  interest  or  without  any 
interest  whatever,  three  millions  sterling  being  lent  for  six 
years  without  interest  in  1800.  Interest  on  previous  loans 
was  reduced,  exchequer  bills  were  cancelled,  and  on  one 
occasion  a  free  gift  of  ;^i  10,000  was  made  to  the  State. 
As  a  consequence    the    Government    debt    to   the    bank 


fir, 


HISTORY    OF     rilF. 


increased  at  a  rapid  rate,  till  it  amounted  at  last  to 
upwards  of  fourteen  and  a  half  millions  sterling,  or  rather 
more  than  the  whole  capital  of  the  corporation.  In  1833 
the  Government  paid  off  one-fourth  of  this  debt  in  reduced 
annuities,  and  tiiereby  reduced  it  to  i^i  1,015,100,  at  which 
amount  it  now  stands.  While  Ministry  after  Ministry  thus 
accurately  tested  the  pliability  of  the  "Governor  and  Com- 
j)ain',"  and  relentlessly  preyed  on  their  fears  as  to  the 
continuance  of  their  monopoly,  an  intense  feeling  of  loyal- 
ty actuated  the  directors  in  all  their  dealings  with  the 
State.  When,  after  the  Rebellion  in  171 5,  the  Govern- 
ment propo.sed  to  reduce  the  interest  on  the  National 
Debt  irom  six  to  five  per  cent.,  the  bank  testified  to  their 
desire  to  assist  the  measure  by  at  once  agreeing  to  accept 
the  lower  rate,  and  to  provide  money  to  pay  off  those 
creditors  who  declined  to  submit  to  the  reduction.  Again, 
when  a  further  reduction  in  the  interest  on  part  of  the 
National  Debt  was  proposed  in  1750,  the  bank  at  once 
assented,  and  arranged  to  find  a  sum  of  money  to  pay  off 
the  dissentients. 

The  following  table  of  renewals  should  be  carefully 
noted.  It  gives  an  account  of  the  successive  renewals  of 
the  charter,  of  the  conditions  under  which  these  renewals 
were  made,  and  of  the  variations  in  the  amount  and 
interest  of  the  permanent  debt  due  by  Government  to  the 
bank,  exclusive  of  the  "dead  weight:" — 


BANK    OF    ENGLAND. 


67 


Date  of 
Renewal. 


Conditions  under  which  Renewals  were  made 
and  Permanent  Debt  contracted. 


Permanent  Debt. 


1694 


1697 


1708 


Charter  granted  redeemable 
upon  the  expiration  of  12 
months'  notice  after  the  first 
of  August,  1705,  upon  pay 
ment  by  the  public  to  the 
bank  of  the  demand  therein 
specified. 

Under  the  Act  the  bank 
advanced  to  the  Govern- 
ment ;^ 1, 200,000  in  consid- 
eration of  their  receiving  an 
annuity  of  ;^  100,000  a  year, 
viz:  8  per  cent,  interest  and 
^4,000  for  management.  .  . 
Charter  continued  by  8  and  9 
Will.  III.  c.  20,  till  twelve 
months'  notice  after  ist  ol 
August,  1710,  on  payment, 
&c. 

Under  this  Act  the  bank 
took  up  and  added  to  their 
stock  ^1,001,171  Excheq- 
uer bills  and  tallies. 

Charter  continued  by  7  Anne, 
c.  7,  till  twelve  months'  no- 
tice after  ist  of  August,  1732, 
on  payment  &c. 

Under  this  Act  the  bank 


£. 


s. 


1,200,000    o    o 


t5S 


HISTORY    OF    THK 


nale  of 
Renewal. 


1713 


Conditions  iniUer  which  Renewals  were  made 
and  Permanent  Debt  contracted. 


Permanent  Debt. 


advanced  /;400.000  to  Gov- 
ernment without  interest, 
and  delivered  up  to  be  can- 
celled ^1-775.0^7.  '7^-  lod. 
Exchequer  bills,  in  consid- 
eration of  their  receiving  an 
annuity  of  ;!^io6,50i,  13s., 
being  at  the  rate  of  6  per 

cent 

Charter  continued  by  12 
Anne,  stat.  i,  c.  11,  till 
twelve  months'  notice  after 
the  1st  of  August,  1742,  on 
payment,  &c. 

In  1 7 1 6,  by  the  3  Geo.  I.  c.8 
the  bank  advanced  to  Gov 
ernment,  at  5  per  cent.  . . . 

And  by  the  same  Act  the 
interest  on  the  Exchequer 
bills  cancelled  in  1780  was 
reduced  from  6  to  5  per  cent 

In  1721,  by  8  Geo.  I.e.  21, 
the  South  Sea  Company  was 
authorized  to  sell  ;!^20O,0O0 
Government  annuities,  and 
corporations  purchasing  the 
same  at  26  years'  purchase 
were  authorized  to  add  the 


L 


2,1     027  17  10 


2,000,000    o    o 


BANK    OF    ENGLAND. 


69 


Date  of     I  Conditions  under  which  Renewals  were  made 
Renewal.  and  Permanent  Debt  contracted. 


amount  to  their  capital 
stock.  The  bank  purchased 
the  whole  of  these  annuities 
at  twenty  years,  purchase . . 
Five  per  cent,  interest 
was  payable  on  this  sum  to 
midsummer  1727,  and  there 
after  4  per  cent. 

At  different  times  be 
tween  1727  and  1738,  both 
inclusive,  the  bank  received 
from  the  public,  on  account 
of  permanent  debt,  ;^3,275,- 
027,  17s.  lod.,  and  advanced 
to  it,  on  account  of  ditto, 
;^3,ooo,ooo:  Difference . . 
Debt  due  by  the  public  in 

1738 

1742  Charter  continued  by  15  Geo. 
II.  c'  13,  till  12  months' 
notice  after  the  ist  of  Aug- 
ust, 1764,  on  payment,  &c. 

Under  this  Act  the  bank 
advanced  ^1,600,000  with- 
out interest,  w*hich,  being 
added  to  the  original  ad- 
vance of^i,20O,000,  and  the 
;,^400,ooo  advanced  in  17 10, 


Permanent  Debt. 


£       s.      d. 


4,000,000    o    o 


9.375.027  17  10 


275,027  17  10 


9,100,000    o    o 


HISIOKY    OF    IHE 


Dale  of 
Renew;tl 


1764 


I78I 


Conditions  under  which  Renewals  were  made 
and  Permanent  Debt  contracted. 


Permanent  Debt. 


bearing-  interest  at  6  per 
cent.,  reduced  the  interest 
on  tlie  whole  to  3  per  cent.. 
In  1745,  under  authority 
of  19  Geo.  II.  c.  6,  the  bank 
delivered  up  to  be  cancelled 
j(^g86,ooo  of  Exchequer 
bills,  in  consideration  of  an 
annuity  of  ^39,472,  being 
at  the  rate  of  3  per  cent.. 

In  1749,  the  23d  Geo.  II. 
c.  6,  reduced  the  interest  on 
the  4  per  cent,  annuities, 
held  by  the  bank,  to  3J^  per 
cent,  for  seven  years  from 
the  25th  of  December,  1750, 
and  thereafter  to  3  per  cent. 

Charter  continued  by  4  Geo. 
III.  c.  25,  till  twelve  months' 
notice  after  the  ist  of  Aug- 
ust 1786,  on  payment,  &c. 

Under  this  Act  the  bank 
paid  into  the  Exchequer 
;^i  10,000,  free  of  all  charge. 

Charter  continued  by  21  Geo. 
III.  c.  60,  till  twelve  months' 
notice  after  the  ist  of  Aug- 
ust, 1812,  on   payment,  &c. 


yC         s.        d 


1 ,600,000     o     o 


986,000     o    o 


BANK    OF    F.XGLAND. 


n 


Date  of 
Renewal 


Conditions  under  which  Renewals  were  made 
and  Permanent  Debt  contracted. 


Permanent  Debt. 


1800 


1833 


Under  this  Act  the  bank 
advanced  ^30,000,000  for 
the  public  service  for  three 
years,  at  3  per  cent. 
Charter  continued  by  40  Geo. 
Ill,  c.  28,  till  twelve  months' 
notice  after  the  ist  of  Aug- 
ust,   1833,  on  payment,  &c. 

Under  this  Act  the  bank 
advanced  to  Government 
^3,000,000  for  six  years 
without  interest;  but  in  pur- 
suance of  the  recommenda- 
tion of  the  committee  of 
1807,  the  advance  was  con- 
tinued, without  interest,  till 
six  months  after  the  signa- 
ture of  a  definitive  treaty  of 
peace. 

In  1 8 16,  the  bank,  under 
authority  of  the  Act  56  Geo. 
III.  c.  96,  advanced  at  3  per 
cent.,  to  be  repaid  on  or  be- 
fore the  1st  of  August,  1833. 
Charter  co<ntinued  by  3  and  4 
Will.  IV.  c.  98,  till  twelve 
months'  notice  after  the  ist 
of  August,  1855,  with  a  pro- 


£         s.       d. 


3,000,000    o    o 
14,686,000    c    o 


HISTORY    OF   THE 


Date  of       Conditions  under  which  Renewals  were  made 
Renewal.     I  and  Permanent  Debt  contracted. 


Permanent  Debt. 


1844 


vise  that  it  may  be  dissolv- 
ed on  twelve  months'  notice 
after  the  1st  of  August,  1855, 
on  payment,  S:c. 

This  Act  directs  that  in 
future  the  bank  shall  deduct 
;^ 1 20,000  a  year  from  their 
charge  on  account  of  the 
management  of  the  public 
debt;  and  that  a  fourth  part 
of  the  debt  due  by  the  pub 
lie  to  the  bank,  or  ^3,671, 
000,  be  paid  off .  . 

Permanent  advance  by 
the  bank  to  the  public,  bear- 
ing interest  at  3  per  cent., 
independent  of  the  advances 
on  account  of  dead  weight, 
or  other    public    securities 

held  by  it 

Charter  continued  by  7  and  8 
Vict.  c.  32,  till  twelve  mos. 
after  the  ist  of  August,i855, 
on  payment,  &c. 

This    act     exempts     the 
notes  of  the  bank  from  all 
charge  on  account  of  stamp 
duty,    and   directs   that   in 


£.         s.       d. 


% 


3,671,000    o    o 


11,015,000    o    o 


BANK    OF    ENGLAND. 


73 


Pate  of 
Renewal. 


Conditions  under  which  Rcnewah  were  made 
and  Permanent  Deljt  contracted. 


future  the  bank  shall  deduct 
a  further  sum  of  ;^  180,000  a 
year  from  the  charge  on  ac 
count  of  the  management  of 
the  public  debt.  It  also  al 
lows  notes  of  the  value  of 
;^  14,000,000  to  be  issued  on 
securities,  separates  the 
banking  from  the  issuing 
department  of  the  estab- 
•lishment,  and  effects  other 
important  changes. 

The   amount  now  issued  on  securi 
ties  (October,  1888,)   is   ^16,200,000 
Present  debt  of  the   Government    to 
the  bank  (1888)  is  ;^11, 015,100. 


Permanent  Debt. 


£ 


s.        d. 


In  i86i,  a  fresh  arrangement  was  made  between  the 
government  and  the  bank,  to  endure  for  twenty-five  years, 
and  under  this  agreement  the  bank  receives  ^^300  per  mil- 
lion on  ;{J"6oo,ooo,ooo,  and  ^150  per  million  on  the  amount 
of  debt  above  that  sum  ;  but  from  these  allowances  are 
deducted  iJ"6o,ooo  for  exemption  from  stamp  duties  and 
the  whole  allowance  out  of  profit  of  issue,  making  together 
nearly  ;^200,ooo.  Charter  will  continue  until  the  bank 
gives  the  government  twelve  months'  notice  and  by  the 
payment  of  all  public  debts — but  notice  has  not  yet  been 
given,  nor  is  it  contemplated. 

Many  people  imagine  that  the  government  and  the 
bank  are  so  closely  identified,  one  with  the  other,  that  it 


74  HISrORY    OV    THE 

would  be  impossible  to  separate  their  interests  ;  but  this 
is  a  great  mistake.  The  government,  although  debtors  to 
the  bank»are  in  evcr>-  other  respect  perfectly  independent 
of  that  corporation  :  and  indeed,  the  debt  is  of  such  a 
nature  that  it  cannot  be  called  in  but  on  certain  condi- 
tions, a  consideration  having  been  given  for  the  loan  of 
the  money  ;  which  consideration,  as  we  have  before 
shown,  consists  in  the  privilege  of  being  bankers  to  the 
State,  and  tlie  sole  bank  of  issue  under  certain  conditions 
previously  mentioned. 

liy  referring  to  the  preceding  table  of  renewals  it 
will  be  noted  that  the  capital  of  the  bank  on  which  divi- 
dends are  paid  have  never  exactly  coincided  with,  though 
it  has  seldom  differed  very  materially  from,  the  permanent 
advance  by  the  bank  to  the  government.  We  have  already 
5ccn  that  it  amounted,  in  1708,  to  ^4,402,342.  Between 
that  year  and  1727,  it  had  increased  to  near  ;^9,ooo,ooo. 
In  1746  it  amounted  to  ^10,780,000.  From  this  period 
it  underwent  no  change  till  1782,  when  it  was  increased  8 
per  cent.,  amounting  to  ^11,642,400.  It  continued  sta- 
tionary at  this  sum  down  to  1816,  when  it  was  raised  to 
^J4.553'000.  by  an  addition  of  25  per  cent,  from  the 
profits  of  the  bank.  In  i833„the  Act  for  the  renewal  of 
the  charter  directed  that  the  sum  of  ^3,67 1,700,  being  the 
fourth  part  of  the  debt  due  by  the  government  to  the 
bank,  should  be  paid  to  the  latter,  giving  the  bank  the 
option  of  deducting  it  from  its  capital.  But  that  has  not 
been  done  ;  and  after  sundry  changes,  the  capital  of  the 
Bank  of  England  amounts  to-day  as  formerly,  to  ^14,553- 
000,  or  seventy-three  millions  of  dollars.  The  reserve  is 
i:3,4 14,660. 


i;.\\K    OF    KNGLANI).  iO 

In  the  year  1844  Parliament  passed  the  Bank  Charter 
Act,  which  separated  the  issue  from  the  banking  depart- 
ment, and  placed  the  note  issue  upon  its  present  basis. 
The  extensions  of  its  corporate  existence,  noted  at  the 
beginning  of  this  chapter,  were  not  always  voluntarily 
granted,  but  were  the  occasion  of  bitter  controversy,  and 
were  dearly  paid  for.  Over  and  over  the  bank  acconnno- 
dated  the  government,  and  sometimes  accommodations 
were  wrung  from  it  as  a  condition  of  the  continuance  of 
its  existence. 

Up  to  1844  the  Bank  of  England,  and  private  banks 
out  of  London  wnth  not  more  than  six  partners,  could  issue 
any  number  of  notes,  the  "  promise  to  pay  "  on  the  face 
of  which  \\as  guaranteed  only  by  the  desire  and  ability  of 
the  issuers  to  keep  faith  with  the  holders  of  them  ;  but  by 
the  act  of  that  year  all  banks  established  subsequently  were 
prohibited  from  issuing  notes,  and  the  issue  of  banks  then 
existing  was  limited.  In  the  case  of  the  Bank  of  En- 
.  gland  the  same  Act,  in  separating  the  issue  department 
from  the  banking  department,  defined  the  limits  within 
which  the  issue  of  notes  upon  securities  must  be  confined, 
and  provided  that  the  bank  should  purchase  any  amount 
of  gold  offered  to  it  at  a  certain  fixed  rate,  or,  in  other 
words,  receive  in  deposit  any  quantity  at  a  certain  rate  in 
exchange  for  notes.  Since  1844  the  governors  and  direc- 
tors of  the  corporation  have  had  practically  no  control 
over  the  issue  of  notes,  that  is  the  Act  providing  that  any 
any  excess  of  issue  above  ^14,000,000  (now,  October,  1888, 
;^  16,000,000)  represented  by  securities  shall  have  its 
equivalent  in  bullion. 

Some  may  wonder,  perhaps,  how  it  would  be  possible 


76 


HISTORV    OP'   THE 


to  pay  all  notes  in  gold  when  ;^  15,000,000  of  them  are  not 
represented  by  gold  in  possession  of  the  bank,  but  by 
securities.  The  method  has  been  thus  lucidly  explained 
by  Thomson  Hankey,  Esq.,  an  ex-govcrnor  and  one  of 
the  directors  of  the  bank.  Supposing  that  all  the  notes 
outstanding,  except  the  ^15,000,000,  were  presented  for 
payment,  there  would  be  enough  gold  in  the  bank  to  meet 
them  at  any  hour  of  any  day,  and  long  before  the  funds 
could  be  reduced  to  fifteen  millions. 

By  any  legal  process  the  bank  would  begin  to  realize 
on  the  ^15,000,000  of  securities.  Four  millions  of  the 
securities  arc  of  a  class  salable  at  all  times,  and  the 
remaining  jQi  1,000,000  are  loaned  to  the  government.  If 
there  should  be  any  need  of  that  sum,  the  Chancellor  of 
the  Exchequer  would  have  no  difficulty  in  turning  the 
government's  debt  to  the  bank  into  three-per-cent.  stock, 
which  he  would  assign  to  the  governor  and  company,  and 
they  would  sell  the  stock  as  required,  receiving  in  pay- 
ment their  own  notes,  which  would  be  immediately  can- 
celled. 

The  good  luck  that  has  always  attended  the  bank  has 
become  proverbial,  and  it  has  become  customary  to  hear 
people  say,  when  desiring  to  convey  an  idea  of  solidity  or 
reliability  :  "  As  sound  as  the  Bank  of  England."  How- 
ever, the  bank  has  been  frequently  affected  by  panics 
among  the  holders  of  her  notes.  In  1745  the  alarm  occa- 
sioned by  the  advance  of  the  Highlanders,  under  the  Pre- 
tender, as  far  as  Derby,  led  to  a  run  upon  the  bank.  The 
streets  about  the  bank  were  thronged  with -an  angry  and 
excited  crowd,  the  major  portion  of  them  beinig  attracted 
through  curiosity,  and  as  the  throng  augmented  the  noise 


BANK    OF    ENGLAND.  11 

and  confusion  became  greater,  and  rumors  of  failure  were 
sent  flying  to  all  parts  of  London.  The  managers  were 
equal  to  the  occasion,  and  in  order  to  gain  time  to  effect 
measures  for  allaying  the  unwarranted  excitement  and  to 
effect  measures  for  averting  the  run,  it  was  decided  to 
adopt  the  device  of  paying  in  shillings  and  sixpences  ; 
but  they  derived  a  more  effectual  relief  from  the  retreat  of 
the  Highlanders,  and  also  from  a  resolution  agreed  to  at  a 
meeting  of  the  leading  merchants  and  traders  of  London, 
and  very  numerously  signed,  asserting  their  belief  in  the 
solvency  and  future  of  the  bank,  and  declaring  their  will- 
ingness to  receive  the  bills  of  the  bank  from  any  person 
in  payment  of  any  sum  that  might  be  due  to  them,  and 
also  pledging  themselves  to  use  their  utmost  endeavors  to 
make  all  their  payments  in  the  same  medium. 

In  June,  1780,  the  bank  was  attacked  by  rioters,  but 
no  damage  was  incurred.  A  considerable  military  force 
guards  the  bank  every  night  as  a  protection  in  any  emer- 
gency that  may  occur. 

The  Bank  of  England  is  known,  and  has  long  been 
known,  to  possess  the  largest  capital  of  any  bank  in  the 
world,  it  being  at  present,  1888,  ;^i4,553,ooo,  with  a  reserve 
fund  of  ^3,414,660.  The  prestige  it  has  always  enjoyed 
is  very  great.  No  government  has  ever  questioned  its 
security  for  public  deposits  of  all  kinds.  The  stock  has 
become  a  favorite  investment  for  public,  private,  and  trust 
funds  ;  and  it  is  very  questionable  whether  it  would  enjoy 
the  same  reputation  with  a  greatly  diminished  capital. 
The  shareholders  do  not  complain,  and  there  certainly 
can  be  no  reason  why  any  one  else  should  desire  a  change. 

But  it  would  be  an  error  to  conclude  that  the  capital 


78  HISTORY    OF   THE 

of  the  bank  is  not  so  invested  as  to  be  of  use  to  the  trad- 
ing community.  The  amounts  lent  to  corporations  for 
local  improvements,  to  railways  on  their  debentures,  and 
in  various  other  ways,  all  tend  to  relieve  the  money  mar- 
ket from  a  certain  number  of  applicants,  and  thus  more 
capital  is  left  free  for  other  commercial  requirements. 

The  bank  has  always  been  in  a  position  to  meet  all 
the  legitimate  claims  upon  it  from  its  own  depositors,  and 
all  these  depositors  could  be  paid  off  and  the  bank  wound- 
up and  brought  to  a  conclusion  within  a  very  few  months, 
without  its  being  required  to  touch  one  farthing  of  the 
capital,  which  would  thus  remain  for  division  amongst  its 
proprietors. 


CHAPTER   V. 


PROGRESS  OF  BANKING. 

TJie  Desirability  of  a  National  Bank — Success  Brings 
Competition — TJie  Scheme  for  a  ^'National  La?id 
Bank!' — Cojintry  Banks  Issue  their  Own  Notes —  War 
for  Independence  in  America — Great  Industrial  and 
Cojnmercial  Development — Startling  Increase  in 
Banks — Unreliable  Bankers y  Worthless  Paper,  Unlim- 
ited Credit  and  Prodigal  Bankers  Precipitate  a  Big 
Crash —  Violent  Revulsion  in  London — joo  out  of  ;^§o 
Banks  Compelled  to  Stop  Pay7npits — The  Bank 
Assailed  by  Jealous  Competitors — Its  TriiimpJi — 
Given  Exclusive  Banking  Privileges — Banks  Prohib- 
ited from  Doing  Business  Within  Sixty-five  Miles  of 
London — Sir  Henry  Par^icll  on  Banking. 


Pr?:vious  to  the  establishment  of  the  Bank  of  En- 
gland much  of  the  nation's  spare  money  was  deposited 
with  the  goldsmiths,  and  the  receipts  they  issued  circu- 
lated from  hand  to  hand,  and  were    negotiable  much   as 


80  HISTORY    OF   THE 

bank-notes  are  now.  But  the  first  banker,  pure  and  sim- 
ple, was  Francis  Child,  once  the  apprentice  of  a  goldsmith, 
who  lived  frugally  and  decently,  and  pointed  his  career 
with  a  moral  by  marrying  his  master's  richly  endowed 
daughter. 

The  desirability  of  a  national  bank  became  apparent 
in  many  ways.  It  was  necessary  for  the  support  of  the 
national  credit,  and  for  the  security  of  a  paper  currency. 
It  promised  to  be  a  means  of  reducing  the  rate  of  interest 
paid  by  the  state,  and  of  restoring  the  coinage,  which  had 
become  vitiated  through  fraud  and  wear,  to  a  legitimate 
standard.  In  1673,  sixteen  years  previous  to  the  founda- 
tion of  the  Bank  of  I'^ngland,  proposals  were  made  for  a 
model  bank,  and  in  1683  a  "  national  bank  of  credit "  was 
projected.  Neither  of  these  was  exactly  what  was  want- 
ed, and  neither  was  carried  out.  The  scheme  upon  which 
the  Bank  of  England  founded  itself  was  a  substantial 
one. 

The  success  of  the  Bank  of  England  attracted  the 
attention  of  moneyed  men  and  many  were  anxious  to  fol- 
low in  its  footsteps.  Active  competition  was  promised. 
A  bank  was  proposed  by  Dr.  Hugh  i Chamberlain,  to 
advance  money  on  the  security  of  landed  property.  A 
company  was  formed  and  this  wonderful  project  seemed  to 
be  on  the  eve  of  consummation.  Unable  to  get  money  at 
the  appointed  time  the  scheme  fell  through.  Many  other 
schemes  sprang  up  that  promised  to  live,  but  faded  away. 

Dr.  Chamberlain's  scheme  for  a  bank,  as  a  competitor 
of  the  Bank  of  England,  proposed  to  lend  money  at  a  low 
rate  of  interest  on  the  «security  of  land.  The  following  is 
an  extract  from  one  of  the -doctor's  proposals:  — 


BANK    or    ENGLAND.  81 

"What  we  call  commodities,  is  nothing  but  land 
severed  from  the  soil.  Man  deals  in  nothing  but  earth. 
The  merchants  are  the  factors  of  the  world,  to  exchange 
one  part  of  the  earth's  produce  for  another.  The  King  is 
fed  by  the  labors  of  the  ox;  and  the  clothing  of  the  army 
and  the  victualling  of  the  navy  must  all  be  paid  for  to  the 
owner  of  the  soil,  as  the  ultimate  receiver.  All  things  in 
the  world  are  originally  the  produce  of  the  ground,  and 
thence  must  all  things  be  raised." 

The  principal  difference  between  this  scheme  of  a 
bank  and  that  of  the  Bank  of  England,  in  opposition  to 
which  corporation,  then  in  its  infancy  and  struggling  with 
difficulties,  this  project  was  started,  was,  that  no  money 
was  ever  to  be  lent  on  personal  security,  but  exclusively 
on  title  deeds  of  unencumbered  freehold  land.  The  bank 
was  christened  the  "National  Land  Bank."  Enough  sub- 
scriptions could  not  be  obtained  within  the  prescribed 
time,  consequently  the  scheme  was  a  failure. 

The  business  of  banking  had  meanwhile  been  under- 
taken in  several  of  the  country  towns  of  England.  They 
met  with  varying  success.  Nearly  all  the  banks  issued 
their  own  notes,  payable  to  bearer  as  part  of  their  busi- 
ness; and  they  were  not  very  scrupulous  in  regard  to  the 
magnitude  of  the  sums  for  which  they  were  given.  Many 
of  the  country  banks  in  England,  still  in  existence,  trace 
back  their  history  to  the  latter  half  of  the  last  century. 

The  termination  of  the  War  for  Independence  in 
America  was  followed  in  England  by  a  great  industrial 
and  commercial  development.  Agriculture,  commerce, 
and  still  more,  manufactures,  into  which  Watt  and  Ark- 
wright's    inventions    had    been    introduced,   immediately 


HISTOR^     OF    THE 


began  to  advance  with  a  rapidity  unknown  at  any  former 
period.  In  consequence,  that  confidence  which  had  cither 
been  destroyed,  or  very  much  weakened  by  the  disastrous 
events  of  tlie  war.  was  fully  re-established.  The  extended 
transactions  of  the  rapidly  developing  country  required 
fresh  facilities  for  carrying  them  on,  and  these  were  sup- 
plied to  the  utmost  profusion.  The  tiumber  of  banks  in 
Kngland,  which  in  1784  was  certainly  under  150,  increased 
so  rapidly,  that  in  1792  they  amounted  to  about  350.  A 
phenomenal  increase  for  those  days,  A  banking  office 
was  opened  in  every  market  town  and  in  most  villages  of 
suitable  size.  Such  being  the  case,  it  is  needless,  per- 
haps, to  add,  that  the  prudence,  capital,  character  and 
connections  of  those  who  set  up  these  establishments  were 
but  little  looked  into  or  attended  to.  The  great  object  of 
a  large  class  of  traders  was  to  obtain  discounts;  and  the 
bankers  of  an  inferior  description  were  equally  anxious  to 
accommodate  them.  All  sorts  of  papers  were  thus  forced 
into  circulation  and  enjoyed  nearly  the  same  degree  of 
esteem.  The  bankers  and  those  with  whom  they  dealt 
had  the  fullest  confidence  in  each  other.  These  bankers 
generally  lived  in  regal  splendor,  entertained  handsomely 
and  gave  outward  evidence  of  untold  wealth.  No  one 
seemed  to  suspect  that  there  was  anything  hollow  or 
unsound  in  the  system.  Credit  of  every  kind  was  strained 
to  the  utmost;  and  the  available  funds  at  the  disposal  of 
the  bankers  were  reduced  far  below  the  level  which  the 
magnitude  of  their  transactions  required  to  render  them 
secure.     Trouble  was  brewing  unseen  on  every  hand. 

The    catastrophe    which    followed    was   such   as   might 
easily  have  been  foreseen.     The  currency  having  become 


BANK    OF    ENGLAND.  83 

redundant,  the  exchanges  took  an  unfavorable  turn  in  the 
early  part  of  1792.  A  difficulty  of  obtaining  financial 
accommodation  in  London  was  not  long  after  experien- 
ced; and,  notwithstanding  the  honest  efforts  of  the  Bank 
of  England  to  mitigate  the  pressure,  a  violent  revulsion 
took  place  in  the  latter  part  of  1792  and  the  beginning  of 
1793.  The  failure  of  one  or  two  great  houses  excited  a 
panic  which  proved  fatal  to  many  more.  Out  of  the  350 
country  banks  in  England  and  Wales,  when  this  revul- 
sion began,  about  300  were  compelled  to  stop  payments, 
and  upwards  of  fifty  were  totally  destroyed,  producing  by 
their  fall  an  extent  of  misery  and  bankruptcy  till  then 
unknown  in  the  country. 

Attempts  have  at  times  been  made  to  show  that  this 
crisis  was  not  occasioned  by  an  excess  of  paper  money 
liaving  been  forced  into  circulation,  but  by  the  agitation 
caused  by  the  war  then  on  the  eve  of  breaking  out. 
Others  contend  that  there  does  not  seem  to  be  any  good 
grounds  for  the  opinion,  and  cite  the  symptoms  of  an  over- 
flow of  paper — a  fall  of  the  exchange,  and  an  efflux  of  the 
exchange — which  took  place  only  in  1792,  or  about  twelve 
months  before  the  breaking  out  of  war. 

The  journals  of  the  period  show  that  the  bank  had  no 
pleasant  path  to  pursue.  The  goldsmiths  and  private 
money  loaners  were  jealous  of  their  great  competitor. 
Their  business  was  diminished;  their  discounts  were  low- 
ered; their  transactions  with  the  government  had  passed 
to  the  Bank  of  England.  For  years,  owing  to  foreign 
funds  and  internal  division,  the  directors  experienced 
great  difficulties.  Nothing  but  strong  will,  unconquerable 
energy,  and  a  healthy  perseverance,  bore  them  on  to  a 


H4  HISTORY    OF    THK 

triumphant  issue.  Looking  upon  the  Bank  of  England  in 
its  present  pre-eminent  position,  it  is  difficult  to  imagine 
it  borne  down  or  disturbed  by  jealous  rivalry;  struggling 
for  a- precarious  existence,  and  laboring  with  an  unheard 
of  zeal  to  preserve  itself.  The  bank  easily  triumphed  over 
all  of  its  enemies. 

In  1708  the  directors  undertook  to  pay  off  and  cancel 
one  million  and  a  half  of  the  exchequer  bills  they  iTad  circu- 
lating twd  years  before  at  4^  per  cent,  with  the  interest 
upon  them,  amounting  in  all  to  ^1,755,028.  which 
increased  the  permanent  debt  due  by  the  public  to  the 
bank,  including  ^^400,000  then  advanced  in  consideration 
of  the  renewal  of  the  charter,  to  ^3,375.028,  for  which 
the)*  were  allowed  C  per  cent. 

The  year  17(8  is  memorable  in  the  history  of  the 
IJank  of  England  for  the  passage  by  Parliament  of  a  law 
w  hich  declared  that  during  the  continuance  of  the  corpo- 
ration of  the  liank  of  England,  it  should  not  be  lawful  for 
any  body  politic,  erected  or  to  be  erected,  other  than  the 
said  governor  and  company  of  the  Bank  of  England,  or  of 
any  other  persons  whatsoever,  united  or  to  be  united  in 
covenants  or  partnership,  exceeding  the  number  of  six 
persons,  in  that  part  of  Great  Britain  called  England,  to 
borrow,  owe,  or  take  up  any  sum  or  sums  of  money  on 
their  bills  or  notes  payable  on  demand  or  in  any  less  time 
than  six  months  from  the  borrowing  thereof.  This  pro- 
viso is  said  to  have  been  elicited  from  the  fact  of  a  rival 
company  having  commenced  the  banking  business  and 
begun  to  issue  notes. 

It  will  be  seen  on  examination  of  the  above  that  the 
proviso  did  not  prohibit  the  formation  of  associations  for 


BANK    OF    F.NGLAND.  85 

general  banking  business  ;  it  simply,  but  absolutely,  for- 
bade the  issue  of  notes  by  associations  of  more  than  six 
partners.  The  issuance  of  notes  was  regarded  as  so  essen- 
tial to  the  business  of  banking  that  it  came  to  be  believed 
that  joint-stock  banking  associations  were  absolutely  pro- 
hibited in  England,  and  no  such  association  was  founded 
until  1826,  and  then  only  after  special  legislation  permit- 
ting them. 

As  previously  stated,  the  year  [708  will  be  ever 
memorable  in  the  history  of  the  Bank  of  England  and  of 
England  itself  In  this  year  the  government  was  led  into 
making  the  Bank  of  England  a  gigantic  financial  monop- 
oly, a  move  which  wrought  irretrievable  ruin  to  many 
banking  houses. 

In  consequence  of  this  law  all  the  joint-stock  banks 
doing  business  were  compelled  to  \\ind   up  their  affairs. 

The  Act  tacitly  gave  encouragement  to  small  shop- 
keepers and  others,  however  limited  their  means,  to  estab- 
lish banks  and  issue  notes  ;  but  to  persons  of  capital,  res- 
pectability and  credit,  willing  to  associate  in  large  bodies 
and  embark  in  a  similar  undertaking,  it  iu  fact  said,  "your 
company  shall  not  consist  of  more  than  six  partners," 
thereby  placing  the  banking  system  in  a  state  of  liberty 
as  to  everything  rotten  and  bad,  and  in  a  state  of  restric- 
tion as  to  cver\'thing  good  and  substantial.  Even  to  this 
day  there  is  no  part  of  English  laws  more  complicated,  or 
less  understood,  than  the  laws  relating  to  partnership  ; 
they  seem  to  be  founded  upon  no  general  principle,  and 
consequently  arc  contradictory  and  obscure. 

This  state  of  affairs  was  continued  until  1825.  when 
an  Act  was  passed  allowing  co-partnerships  of  more  than 


Pg  niSTOKV    OK    THE 

six  persons  to  carry  on  business  in  England  as  bankers, 
sixty-five  miles  from  London,  with  tlie  provision,  how- 
ever, that  such  stockholders  should  be  Jiable  for  the  entire 
debts  of  the  bank.  Notwithstanding  the  provisions  of 
this  law,  which  would  seem  to  prevent  any  joint-stock 
bank  being  established  within  sixty-five  miles  of  London, 
in  1834  the  London  and  Westminister  bank  was  founded, 
and  has  been  in  operation  ever  since,  although  not  with- 
out having  innumerable  troubles  to  encounter.  Litiga- 
tion Avith  the  Bank  of  England,  caused  by  a  too  fierce 
competition,  and  other  difficulties,  at  first  beset  it,  but 
through  all  of  these  it  has  passed,  and  met  with  the  high- 
est success.  The  success  of  the  bank  encouraged  others, 
and  in  and  about  London  are  to  be  found  plenty  of  them. 

It  must  be  borne  in  mind,  however,  that  there  are 
to-day  (1888)  no  English  joint-stock  banks  of  issue  except 
such  as  were  formed  prior  to  the  passage  of  what  is  known 
as  the  1844  Bank  Act,  which  prohibited  joint-stock  banks 
from  setting  up  within  sixty-five  miles  of  London.  And 
these  were  all  situated  beyond  the  sixty-five  mile  limit, 
but  as  a  matter  of  fact  the  privilege  of  issue  is  very  little 
regarded  in  England  to-day.  The  issuing  banks  have  a 
right  to  issue  ;^5, 5  12,000 — but  they  onl}-  have  in  circula- 
tion. October,  1888.^2,560,000. 

The  celebrated  Act  of  1844,  which  is  described  at 
length  further  on,  affected  the  Bank  of  England  in  many 
ways.  Up  to  this  period  the  bank,  as  also  private  banks 
with  not  more  than  six  partners,  and  since  the  year  1826, 
joint-stock  banks  beyond  a  radius  of  sixty-five  miles  from 
London,  could  issue  notes  without  restriction,  with  the 
'promise  to  pay"  expressed  upon  the  notes  was  guaran- 


RANK    OF    ENGLAND.  8*7 

teed  only  by  the  desire  and  ability  of  the  issuers  to  keep 
faith  with  the  holders  of  them.  The  Act  of  1844  prohib- 
ited in  future  all  issues  by  newly  formed  private  or  joint- 
stock  banks,  and  by  those  which  had  from  any  cause  ceased 
to  issue  prior  to  that  date,  or  should  do  so  subsequently  ; 
and  restricted  such  issues  as  then  existed  within  certain 
fixed  amounts. 

"  The  trade  of  banking,"  says  Sir  Henry  Parnell,  "  is 
of  such  a  nature,  that  it  is  scarcely  possible  for  any  but  a 
very  numerous  body  of  partners  to  furnish  a  capital  suffic- 
iently large  for  carrying  it  on  advantageously  to  the  pub- 
lic. A  single  individual,  or  a  few  individuals,  cannot  be, 
but  very  rarely,  possessed  of  that  amount  of  capital  which 
alone  can  render  this  trade  a  safe  one  ;  for  this  reason,  in 
order  to  establish  in  a  country  a  sound  system  of  banking, 
it  is  indespensibly  necessary  that  care  should  be  taken 
not  to  impose  any  legislative  restrictions  in  the  way  of 
large  bodies  associating  together  toform  joint-stock  bank- 
ing companies. 


CHAPTER  VI. 


SUSPENSION  OF  CASH  PAYMENTS. 

Important  Epoch  in  tlic  History  of  English  Banking- 
Passage  of  the  Restriction  Act — The  Government 
Advises  ^vith  the  Bank- -Run  on  Country  Batiks — 
Bank  of  England  Again  in  Trouble — Suspension  of 
Cash  Payments  ■  Embarking  on  a  New  Course —  The 
Bank  Issues  a  Notice  to  the  Public — Increase  in  Coun- 
try Banks  in  lygj — Cause  of  Enormous  Failures — 
Extending  the  Field  for  Circulation  of  Bank  of 
England  Paper — History  of  Depreciation  of  Currency 
— Paper  Raised  to  Par  by  Accidental  Circumstances. 


The  year  1797  was  a  most  important  epoch  in  the 
history  of  English  banking.  Owing  partly  to  events  con- 
nected with  the  war  then  carried  on,  to  loans  to  the 
Emperor  of  Germany,  to  bills  drawn  on  the  treasury  at 
home  by  the  British  agents  abroad,  and  partly,  and  chiefly, 
perhaps,  to  the  advances  most  unwillingly  made  by 
the  bank  to  the  government,  which  prevented  the  direc- 
tors from  having  a  sufficient  control  over  their  issues,  the 


BANK    OF    EN'GLAND.  89 

exchanges  became  unfavorable  in  1795,  and  in  that  and 
the  follovvin^^  year  large  sums  of  specie  were  drawn  from 
the  bank.  In  the  end  of  1796  and  beginning  of  1797,  con- 
siderable apprehensions  were  entertained  of  invasions,  and 
rumors  were  propogated  of  descents  having  been  actually 
made  on  the  coast.  In  consequence  of  the  fears  that  were 
thus  excited,  runs  were  made  on  the  provincial  banks  in 
different  parts  of  the  country;  and  some  of  them  having 
failed,  the  panic  became  general  and  extended  itself  to 
London.  Demands  for  cash  poured  in  from  all  quarters 
upon  the  bank,  which,  on  Saturday,  the  25th  of  February, 
1797,  had  only  ^{^  1,272,000  of  cash  and  bullion  in  its  coffers 
with  every  prospect  of  a  violent  run  taking  place  on  the 
following  Monday.  In  this  emergency,  an  order  in  council 
was  issued  on  5unda\',  tlie  26th,  prohibiting  the  directors 
from  paying  their  notes  in  cash  until  the  sense  of  Parlia- 
ment should  be  tal<cn  on  the  subject.  And  after 
Parliament  met,  and  the  measure  had  been  much  discussed, 
it  was  agreed  to  continue  the  restriction  till  six  months 
after  the  signature  of  a  definitive  treaty  of  peace. 

We  have  now  come  to  a  period  in  the  history  of 
banking  marked  by  one  of  the  most  extraordinary  cir- 
cumstances that  ever  happened  in  iMigland,  namely,  the 
stoppage  of  the  issue  of  specie  in  their  customar\-  ]"iay- 
ments  by  the  Bank  of  England.  We  arc  now  approaching 
one  of  the  most  important  and  critical  periods  in  the 
history  of  the  bank.  We  propose,  therefore,  to  give 
somewhat  in  detail  a  gradual  development  of  its  condition, 
and  the  real  causes  which  led  to  the  final  suspension  of  all 
payments  in  cash,  together  Avith  the  consequences  which 
followed  that  suspension. 


90 


HISTORY    OF    THE 


On  the  15th  of  January,  1795,  the  Court  of  Directors 
of  the  Bank  of  England  passed  a  resolution  that  the  Chan- 
cellor of  the  Exchequer  be  requested  to  make  such 
arrangements  in  his  finances  of  the  present  year  as  not  to 
depend  on  any  further  assistance  from  them  beyond  what 
had  already  been  agreed  on  ;  and  on  the  i6th  of  April  the 
governor  and  deputy-governor  were  directed  to  wait  upon 
a  representative  of  the  government  to  express  the  uneasi- 
ness they  felt  at  being  called  upon  to  pay  upwards  of  two 
millions  in  treasury  bills,  and  to  request  the  government 
to  provide  for  their  discharge. 

On  the  Sth  of  October,  1795,  the  Court  of  Directors 
sent  a  written  paper  to  the  Chancellor  of  the  Exchequer, 
purporting  that  the  very  large  and  continued  drain  of 
bullion  and  specie  which  the  bank  had  lately  experienced, 
arising  from  loans  and  other  subsidies,  together  with  the 
prospect  of  the  demand  for  gold  not  appearing  soon  to 
cease,  had  excited  such  apprehension  in  the  Court  of 
Directors  that,  on  the  most  serious  deliberation,  they 
deemed  it  right  to  communicate  to  the  Chancellor  of 
the  Exchequer  the  absolute  necessity  they  conceived  to 
exist  for  diminishing  the  sum  of  their  present  advances  to 
the  government,  the  last  having  been  granted  with  great 
reluctance  on  their  part;  and  then  only  on  his  pressing 
solicitations,  and  statement  that  serious  embarrassments 
would  arise  to  the  public  service  if  the  bank  refused." 

Xo  reply  was  made  to  this  application,  or  any  steps 
taken  bj'  the  Chancellor  of  the  Exchequer  to  relieve  the 
bank  from  the  difficulties  in  which  they  found  themselves; 
but  they  were  left  to  struggle  through  them  as  best  they 
might.     The  directors  of  the  bank  waited  on  the  govern- 


BANK    (»K    ENGLAND.  D 1 

ment  on  the  25th  of  the  same  month,  on  the  subject  of  a 
contemplated  loan  to  the  Emperor  of  Austria,  and  were 
informed  that  no  such  loan  was  contemplated. 

Several  commLuiications  appear  to  have  passed 
between  the  bank  and  Ljovcrnmcnt  from  this  time  until  the 
20th  of  July,  1796,  on  which  day  the  bank  received  a  letter 
from  the  government  requiring  several  advances  of  monc\' 
including  the  payment  of  the  treasury  bills;  and,  after  a 
debate  on  the  subject  of  the  letter,  the  court  came  to 
several  resolutions,  which  resulted  in  a  compliance  with 
the  government's  request,  with  this  significant  addition, 
that  such  compliance  be  accompanied  with  a  MOST 
SERIOUS  ANT)  SOLKMN  Ri'.SOLUTTOX,  which,  for  the  justi- 
fication of  the  court,  they  desire  may  be  laid  before  his 
Majesty's  cabinet.  Tiiis  remonstrance  concluded  as  fol- 
lows:^ 

"They  (the  Court  of  Directors)  beg  leave  to  declare 
that  nothing  could  induce  them,  under  present  circum- 
stances, to  comply  with  the  demand  made  upon  them,  but 
that  the  dread  of  their  refusal  might  be  {productive  of  a 
greater  evil  ;  and  nothing  but  the  extreme  pressure  and 
exigency  of  the  case  can,  in  any  shape,  justify  them  for 
acceding  to  this  measure,  and  they  apprehend  in  so  doing 
they  render  themselves  totally  incapable  of  granting  any 
further  assistance  to  government  during  the  remainder  of 
this  year,  and  unable  to  make  the  usual  advances  on  the 
land  and  malt  taxes  for  the  ensuing  year;  should  those 
bills  be  passed  before  Christmas.  The}'  likewise  consent 
to  this  measure  in  a  firm  reliance  that  the  repeated  prom- 
ises so  frequently  made  to  them,  that  the  advances  on  the 
treasury  bills   should  be  completely  done  away,  may  be 


92  HISTORY    OF    THE 

actually  fulfilled  at  the  next  meeting  of  Parliament,  and 
the  necessary  arrangements  taken  to  prevent  the  same 
from  ever  happening  again,  as  they  conceive  it  to  be  an 
unconstitutional  mode  of  raising  money;  what  they  are 
not  warranted  by  their  charter  to  consent  to;  and  an 
advance  always  extremely  inconvenient   to    themselves." 

Hv  this  confession  on  the  part  of  the  bank,  it  appears 
that  the\-  w  ere  in  the  habit  of  violating  that  clause  in 
their  charter  which  prohibits  their  lending  any  money  to 
the  King  without  the  consent  of  Parliament. 

On  the  9th  of  h'ebruary,  1797,  the  Court  of  Directors 
ordered  the  governor  of  the  bank  to  notify  the  j^overn- 
ment  that,  under  the  i)resent  state  of  the  bank's  advances 
to  government,  to  agree  to  his  request  of  making  a  further 
advance  of /j, 500,000  as  a  loan  to  Ireland,  would  threaten 
ruin  to  the  bank,  and  most  probably  bring  the  directors 
under  the  necessity  of  shutting  up  their  doors. 

These  several  remonstrances  to  the  p;overnment  seem 
to  have  had  little  or  no  effect;  and  the  result  anticipated, 
viz.:  a  stoppage  of  the  Bank  of  England,  took  place  even 
at  an  earlier  period  than  the  directors  themselves  calcu- 
lated upon. 

The  run — to  speak  in  commercial  phraseology — com 
menced  upon  some  of  the  countr}'  bankers  ;   and  the  great 
demand  for  specie  to  supply  them    induced   the   directors 
to  lay  the  state  of  their  affairs  before  the  government. 

His  Majesty's  Privy  Council  held  a  meeting  and  the 
following  resulted  : 

"  Upon  the  representation  of  the  Chancellor  of  the 
Exchequer,  stating,  that  from  the  result  of  the  informa- 
tion he   has   received,  and   of  the  inquiries   which    it  has 


BANK    OF    r.N'GLANI). 


98 


been  his  duty  to  make  respecting  the  effect  of  the  unusual 
demand  for  specie  that  has  been  made  upon  the  metropo- 
Hs,  in  consequence  of  ill-founded  alarms  in  different  parts 
of  the  country  ;  it  appears,  that  unless  some  measure  is 
immediately  taken,  there  may  be  reason  to  apprehend  a 
want  of  a  sufficient  supply  of  cash  to  answer  the  exigencies 
of  the  public  service.  It  is  the  unanimous  opinion  of  the 
Board,  that  it  is  indispensably  necessary  for  the  public 
service  that  the  tlirectors  of  the  Bank  of  England  should 
forbear  issuing  any  cash  in  payment  until  the  sense  of  Par- 
liament can  be  taken  on  that  subject,  and  the  proper 
measures  adopted  thereupon  for  maintaining  the  means 
of  circulation,  and  supporting  the  public  and  commercial 
credit  of  the  Kingdom  at  this  important  juncture.  And  it 
ordered  that  a  copy  of  this  minute  be  transmitted  to  the 
directors  of  the  Bank  of  England  at  once. 

On  the  next  Monday  morning  the  following  was 
issued  by  the  bank: — 

"  In  consequence  of  an  order  of  his  Majesty's  Privy 
Council,  notified  to  the  bank  last  night,  the  (jovernor, 
Deputy  Governor,  and  Directors  of  the  Bank  of  England 
think  it  is  their  duty  to  inform  the  proprietors  of  the  bank 
stock,  as  well  as  the  public  at  large,  that  the  general  con- 
cerns of  the  bank  are  in  the  most  affluent  and  flourishing 
condition,  and  such  as  to  preclude  every  doubt  as  to  the 
security  of  its  notes.  The  Directors  mean  to  continue 
their  usual  discounts,  for  the  accommodation  of  the  com- 
mercial interests,  paying  the  amount  in  bank  notes;  and 
the  dividend  warrants  will  be  paid  in  the  same  manner." 

Great  alarm  was  excited  throughout  London  on  the 
appearance  of  the  above  notice. 


94 


HISTORY    OF    THE 


By  the  order  of  the  Privy  Council  the  Directors  of  the 
Bank  of  England  were  restrained  from  doing  what  in  fact 
was  physically  impossible  for  them  to  do;  and  were  in- 
dulged with  the  liberty  of  exchanging  one  promise  to  pay 
for  another  promise  to  pay,  yet,  notwithstanding  this  sus- 
pension of  cash  payments,  which  forms  a  most  memorable 
era  in  the  history  of  political  economy,  the  credit  of  the 
bank  immediately  revived,  and  their  notes  were  circulated 
more  freely  than  ever,  and  retained  the  same  degree  of 
credit  as  when,  according  to  the  tenor  of  their  promises, 
they  were  honored  with  an  immediate  payment. 

The  bank  was  determined  to  act  up  to  the  letter  and 
spirit  of  the  order  of  the  Privy  Council ;  for  they  even 
refused  to  furnish  the  bankers  of  the  metropolis  with  a  suf- 
ficient quantity  of  specie  to  pay  the  fractional  part  of  the 
checks  drawn  on  them;  and  in  reply  to  the  application  of 
the  Committee  of  Bankers,  stated  : — "They  could  not 
spare  the  specie." 

The  moment  the  Bank  of  England  on  authority  re- 
fused to  pay  their  notes,  the  legislature  without  doubt 
became  responsible  for  the  validity  of  that  currency  which 
they  had  hitherto  only  connived  at. 

As  previously  stated,  as  soon  as  the  order  in  council 
prohibiting  payments  in  cash  appeared,  a  meeting  of  the 
principal  bankers,  merchants,  traders,  &c.,  of  the  metrop- 
olis, was  held,  when  a  resolution  was  agreed  to,  and  very 
numerously  signed,  pledging  those  present  to  accept,  and 
to  use  every  means  in  their  power  to  make  bank-notes  be 
accepted,  as  cash  in  all  transactions.  This  resolution 
tended  to  allay  the  apprehensions  that  the  restriction  had 
excited. 


BANK    OF    r.NflLAND.  95 

Parliament  being  in  session  at  the  time,  a  committee 
was  immediately  appointed  to  examine  into  the  affairs  of 
the  bank  ;  and  their  report  put  to  rest  whatever  doubts 
might  have  been  entertained  with  respect  to  the  solvency 
of  the  establishment,  by  showing,  that  at  the  moment 
when  the  order  in  council  appeared,  the  bank  was  possess- 
ed of  property  to  the  amount  of  ;i^i 5,5 13,690,  after  all 
claims  upon  it  had  been  deducted.  This  suspension  of 
cash  payments  being  naturally  followed  by  a  withdrawal 
of  gold  from  circulation,  made  it  necessar)-  to  allow  of  the 
issue  of  notes  of  a  smaller  denomination  than  ^5,  and  the 
statute  of  1777  was  accordingly  also  suspended. 

It  had  been  generally  supposed,  previously  to  the 
passing  of  the  Restriction  Act,  that  bank-notes  would  not 
circulate  unless  they  were  immediately  conxertible  into 
cash.  But  the  event  showed  that  this  was  not  really  the 
case.  Though  the  notes  of  the  Bank  of  England  were 
not,  at  the  passing  of  the  Restriction  Act,  declared  by  law 
to  be  legal  tender,  they  were  rendered  such  in  practice, 
by  being  received  as  cash  in  all  payments  on  account  of 
government,  and  by  the  vast  majority  of  individuals.  For 
the  first  three  years  of  the  restriction,  their  issues  were  so 
moderate  that  they  not  only  kept  on  a  par  with  gold,  but 
actually  bore  a  small  premium.  But  in  1801,  1802,  and 
1803,  they  were  so  much  increased  that  they  fell  to  a  dis- 
count of  from  8  to  10  per  cent.  In  1804  they  again  recov- 
ered their  value  ;  and  from  that  year  to  1808,  both  inclu- 
sive, they  were  at  a  discount  of  2^  per  cent.  In  1809  and 
18 10,  however,  the  directors  appear  to  have  embarked  on 
a  new  course,  and  to  have  entirely  lost  sight  of  the  princi- 
ples by  which  their  issues  had  previously  been  governed  ; 


90  HISTORY    OF    THE 

for  the  average  amount  of  bank-notes  in  circulation,  which 
had  not  exceeded  17^  millions,  nor  fallen  short  of  16^  mil- 
lions, in  any  one  year,  from  1802  to  1808,  both  inclusive, 
was  in  1809  raised  to  ;£;  18,927,833,  and  iSioto  ;{;22,54i,523. 
The  issues  of  country  bank  paper  were  increased  in  a  still 
greater  proportion  ;  and,  as  there  was  no  corresponding 
increase  of  the  business  of  the  country,  the  discount  on 
bank-notes  rose  from  2k  in  1808  to  from  13  to  16  per 
cent,  in  1809  and  1810. 

This  depreciation  in  the  value  of  bank  paper  being 
accompanied  by  a  corresponding  fall  in  the  exchange, 
attracted  the  attention  of  the  public  and  the  legislature. 
In  consequence,  the  House  of  Commons  appointed,  in 
1810,  a  committee  to  inquire  into  the  subject  ;  and  having 
examined  several  witnesses,  the  committee  in  their  report, 
which  was  both  an  able  and  a  celebrated  paper,  justly 
ascribed  the  fall  in  the  value  of  bank  paper,  as  compared 
with  gold,  to  its  over-issue  ;  and  recommended,  in  the 
view  of  correcting  the  existing  evil  and  of  preventing  its 
recurrence,  that  within  two  years  the  bank  should  be 
obliged  to  resume  specie  payments.  But  this  recommen- 
dation not  being  adopted,  the  over-issue  of  paper  went  on 
increasing.  In  18 12  it  was  at  an  average  discount,  as 
compared  with  bullion,  of  20  per  cent.;  in  1813,  of  23  per 
cent.;  and  in  18 14,  when  the  maximum  of  depreciation 
was  attained,  it  was  at  25  per  cent. 

At  the  period  when  the  restriction  on  cash  payments 
took  place  in  1797,  it  is  supposed  that  there  were  about 
280  country  banks  in  existence  ;  but  so  rapidly  were  these 
establishments  multiplied,  that  they  amounted  to  above 
900  in  1813.     The  price  of  corn,  influenced  partly  by  the 


BANK    OF    ENGLAND.  97 

depreciation  of  the  currency  and  the  facihty  with  which 
discounts  were  obtained,  but  more  by  deficient  harvests 
and  the  unprecedented  difficulties  which  the  war  threw  in 
the  way  of  importation,  rose  to  an  extraordinary  height 
during  the  five  years  ending  witli  1813.  But  the  harvest 
of  that  year  being  unusually  productive,  and  the  inter- 
course with  the  Continent  being  then  also  renewed,  prices, 
influenced  by  both  circumstances,  sustained  a  very  heavy 
fall  in  the  latter  part  of  18 13  and  the  beginning  of  18 14. 
And  this  fall  having  ruined  a  considerable  number  of  far- 
mers and  produced  a  general  want  of  confidence,  such  a 
destruction  of  provincial  paper  took  place  as  has  rarely 
been  paralleled.  In  18 14,  18 15,  and  18 16,  no  fewer  than  240 
country  banks  stopped  payment  ;  and  cigJity-nine  com- 
missions of  bankruptcy  were  issued  against  these  estab- 
lishments, being  at  the  rate  of  one  commission  against 
every  ten  and  a  Jialf  oi  X\\q.  total  number  of  banks  existing 
in  1813. 

The  great  reduction  that  was  thus  suddenly  and  vio- 
lently brought  about  in  the  quantity  of  country  bank 
paper,  by  extending  the  field  for  the  circulation  of  Bank 
of  England  paper,  raised  its  value  in  18 17  nearly  to  a  par 
with  gold.  The  return  to  cash  payments  being  thus  facil- 
itated, it  was  fixed,  in  1819,  that  they  should  take  place 
in  1823.  But  to  prevent  any  future  over  issue,  and  at  the 
same  time  to  render  the  resumption  as  little  burdensome 
as  possible,  it  was  enacted  that  the  banks  should  be 
obliged,  during  the  interval  from  the  passing  of  the  .Vet 
till  the  return  to  specie  payments,  to  pay  its  notes,  if 
required,  in  bars  of  standard  bullion  of  not  less  than  sixty- 
ounces'  weight.     This  plan  was  not,  however,  acted  upon 


98  HISTORY    OK   THE    IJANK    OF    ENGLAND. 

during  the  period  allowed  by  law  ;  for,  a  large  amount  of 
gold  having  been  accumulated  at  the  bank,  the  directors 
preferred  recommencing  specie  payments  on  the  ist  of 
May.  1821. 

It  is  true,  that  after  a  currency  has  been  for  a  consid- 
erable period  depreciated,  as  much  injustice  is  done  by 
raising,  as  was  previously  done  by  depressing,  its  value. 
But  there  is  good  reason  to  doubt  whether  the  deprecia- 
tion from  1809  to  18 1  5  (for  the  depreciation  of  2^- per  cent, 
during  the  six  preceding  years  is  too  inconsiderable  to  be 
taken  into  account)  extended  over  a  sufficiently  length- 
ened period  to  warrant  legislation  looking  for  a  departure 
from  the  old  standard.  It  is  needless,  however,  to  offer 
any  opinion  on  this  rather  difficult  point,  for  we  have  seen 
that  the  value  of  paper  was  raised  in  18 16  and  18 17  almost 
to  par  by  accidental  circumstances  without  any  interfer- 
ence on  the  part  of  the  government  or  the  bank.  Sir 
Robert  Peel's  Act,  to  which  this  raise  has  been  ascribed, 
not  being  passed  till  18 19,  could  have  nothing  to  do  with 
what  occurred  two  or  three  years  previously.  Its  object 
was  two-fold,  to  redeem  the  pledge  given  by  Parliament 
to  restore  the  old  standard  on  the  return  of  peace,  and  to 
shut  the  door  against  any  further  depreciation  of  paper. 


CHAPTER    VII. 


SPECULATIONS,  SCHEMES,  FAILURES  AND  LOSSES. 

Batik  of  England  Resumes  Cash  Payments —  Vicissitudes 
of  Banking — Speculative  Rage — No  Scheme  Too 
Hazardous — Speculation  of  To- Day  Not  Without  a 
Precedent — Worthless  Paper  Readily  Negotiated — 
Discounts  Easily  Obtained — Schemes  of  Country 
Bankers — A  Cyclone  of  Faihires — Bank  of  England 
Makes  a  Serious  Blunder — Distrust  Frilly  Awake — 
A  Tremendous  Ru7i — Cause  of  the  Difficulties — An 
Instructive  Table — Accumulation  of  Securities —  What 
the  Directors  Should  Have  Done  to  Avoid  Disaster 
— Loss  of  Three  Millions  of  Bullion —  The  South  Sea 
Bubble — A  Delirium  of  Speculation — List  of  the 
Bubble  Companies  of  1721 — Getting  Rich  Without 
Trouble — Philanthropist  Thomas  Guy. 


The  resumption  of  cash  payments  did  not,  however, 
put  an  end  to  the  vicissitudes  of  banking.  Notwithstand- 
ing the  ample  experience  that  had  been  supplied  by  the 


fJO  HISTORY    OF   THE 

occurrences  of  1792-3,  and  1814-16,  of  the  mischievious 
consequences  of  the  issue  of  paper  by  the  country  banks, 
and  of  their  want  of  solidity,  nothing  whatever  was  done 
when  provision  was  made  for  returning  to  specie  payment 
to  restrain  their  issues,  or  to  place  them  on  a  better  foot- 
ing. The  consequences  of  such  improvidence  were  not 
long  in  manifesting  themselves.  The  price  of  corn  and 
other  agricultural  products,  which  had  been  greatly  de- 
pressed in  consequence  of  abundant  harvests,  in  1820,  1821, 
and  1822,  rallied  in  1823,  and  the  country  bankers  imme- 
diately began  to  enlarge  their  issues.  It  is  hardly 
necessary  to  look  into  the  circumstances  which  conspired, 
along  witli  the  rise  of  prices,  to  promote  the  extraordinary 
rage  for  speculation  exhibited  in  1824  and  1825.  It  is 
sufficient  to  observe,  that  in  consequence  of  their  opera- 
tion, confidence  was  very  soon  carried  to  the  greatest 
height.  It  did  not  seem  to  be  supposed  that  any  scheme 
could  be  hazardous,  much  less  wild  or  extravagant.  Wild 
American  speculation,  occasionally  seen,  is  tame  com- 
pared with  the  wild  business  ventures  and  speculations  in 
England  in  the  years  named  above.  So  speculation,  after 
all,  as  seen  to-day,  is  not  without  its  precedent. 

In  those  days  the  infatuation  for  speculation  was 
such,  that  even  those  regarded  as  the  most  conservative 
and  considerate  did  not  scruple  to  embark  in  visionary 
and  the  most  utterly  absurd  projects;  while  the  extreme 
facility  with  which  discounts  were  procured  upon  bills  at 
very  long  dates,  afforded  the  means  of  carrying  on  every 
sort  of  undertaking.  The  most  worthless  paper  was  read- 
ily negotiated.  Many  of  the  country  bankers  seemed  to 
have  no  other  object  than  to  get  themselves  indebted  to 


BANK    OK    ENGLAND.  101 

the  public.  And  such  was  the  vigor  and  success  of  their 
efforts  to  force  their  paper  into  circulation,  that  the 
amount  of  it  afloat  in  1825  is  estimated  to  have  been 
nearly  60  per  cent,  greater  than  in  1823.  The  conse- 
quence of  this  unprincipled  and  extravagant  conduct 
speedily  brought  ruin  to  all  engaged. 

Now  came  a  cyclone  of  failures,  the  direct  outgrowth 
of  speculation,  the  like  of  which  was  never  experienced 
before,  seventy  banks  going  under  in  six  weeks,  the 
majority,  of  course,  being  country  banks.  The  currency 
having  become  redundant,  the  exchange  began  to  decline 
in  the  summer  of  1824.  The  directors  of  the  Bank  of 
England  having  unwarily  entered,  in  the  early  part  of  that 
year,  into  an  engagement  with  the  government  to  pay  off 
such  holders  of  4  percent,  stock  as  might  dissent  from  its 
conversion  into  a  3}^  per  cent,  stock,  were  obliged  to 
advance  a  considerable  sum  on  this  account  after  the  de- 
pression of  the  exchange.  But  despite  this  circumstance, 
they  might  and  ought  to  have  taken  measures,  in  the 
latter  part  of  1824  and  the  earlier  part  of  1825,  by  lessen- 
ing their  issues  to  stop  the  efflux  of  bullion.  But  not 
being  sufficiently  alive  to  the  urgency  of  the  crisis,  the 
London  currency  was  not  materially  diminished  till  Sep- 
tember, 1825.  The  recoil,  which  would  have  been  less 
severe  had  the  efforts  of  the  bank  to  prevent  the  exhaustion 
of  its  coffers  taken  place  at  an  earlier  period,  was  most 
appalling. 

The  country  banks  began  to  give  way  the  moment 
they  experienced  a  considerably  increased  difficulty  of 
obtaining  accommodation  in  London,  and  confidence  and 
credit  were  immediately  at    an    end.     Suspicion   having 


102  HISTORV    OF   THE 

awakened  from  her  trance,  distrust  had  no  limits.  All 
classes  of  depositors  made  haste  to  draw  out  the  money 
they  had  entrusted  to  the  care  of  the  banks.  There  was 
also  a  tremendous  run  upon  them  for  payment  of  their 
notes,  not  in  the  view  of  sending  the  gold  as  a  mercantile 
adventure  to  the  Continent,  but  to  escape  the  loss  which 
it  became  obvious  the  holders  of  country  paper  would  have 
to  sustain.  SiJir^'c  qui  pent  was  the  universal  cry;  and 
the  destruction  was  so  sudden  and  extensive,  that  in  less 
than  six  weeks  more  than  seventy  banking  establishments 
were  swept  out  of  existence,  and  a  vacuum  was  created  in 
the  currency  which  absorbed  from  eight  to  ten  millions  of 
additional  issues  by  the  Bank  of  England  at  the  same  time 
that  myraids  of  those  private  bills  that  had  previously 
swelled  the  amount  of  currency,  and  added  to  the 
machinery  of  speculation,  were  totally  destroyed. 

It  may  be  worth  while,  perhaps,  to  observe  that  it  has 
been  alleged,  in  opposition  to  what  is  now  stated,  that  the 
difficulties  of  the  bank  in  1825  were  not  caused  by  any 
excess  either  of  its  issues  as  of  those  of  the  country  banks, 
but  by  the  too  great  amount  of  capital,  that  is  of  coin  and 
bullion,  it  had  lent;  and  in  proof  of  this  allegation,  we  are 
referred  to  the  increase  of  nearly  eight  millions  in  secur- 
ities which  the  bank  held  in  August,  1825,  over  their 
amount  in  August,  1822,  and  to  the  simultaneous  decrease 
of  nearly  six  and  a  half  millions  in  the  amount  of  bullion 
in  its  coffers.  The  following  statement  is  instructive: — 
Securities  of  all  sorts,  31st  August,  1822,.  .  .  .   £1^ ,2^0,^10 

31st  August,  1825, 25,106,030 

Excess  of  securities,  31st  August,  1825,  over 

those  held  on  31st  August,  1822, i;7,8i 5,520 


BANK    OF    ENGLAND.  103 

Bullion  in  Bank,  31st  August,  1822 ;Cio,097,96o 

"      31st  August,   1825 3,634,320 

Diminution  of  bullion, ;(^6,463,640 

On  the  28th  February,  1826,  the  bullion  in  the  bank 
amounted  to  only  ^^"2,459,5  10. 

A  little  consideration  will  suffice  to  show  the  futility 
of  this  statement.  No  issue  of  notes  can  be  said  to  be  in 
itself  excessive.  Whether  it  is  or  is  not  in  excess  depends 
upon  its  relation  to  the  amount  of  coin  and  bullion  reserv- 
ed by  the  issuing  banks  in  its  coffers.  The  Bank  of  Eng- 
land enlarged  its  issues  disproportionately  and  took  no 
steps,  or  none  of  sufficient  energy,  to  reduce  the  amount 
of  notes  in  circulation  till  long  after  the  exchange  had 
become  unfavorable,  and  bullion  was  demanded  of  it  for 
exportation. 

The  accumulation  of  securities  was  the  necessary 
result  of  this  radical  error.  The  currency  having  become 
redundant  in  1824,  the  notes  of  the  bank  were  returned 
upon  it  for  gold,  so  that  its  securities  were  augmented  at 
the  same  time  that  its  means  of  dealing  with  the  unfavor- 
able exchange  were  impaired.  It  should  be  remembered, 
that  the  efflux  of  bullion  showed  conclusively  that,  how- 
ever issued,  and  whether  greater  or  less  than  at  former 
periods,  the  paper  afloat  was  in  excess,  and  that  its  reduc- 
tion had  become  indispensable.  And  such  being  the  case, 
it  was  the  duty  of  the  bank  directors,  as  soon  as  they  felt 
the  drain  for  gold  setting  steadily  against  them,  to  adopt 
every  means  in  their  power,  by  raising  the  rate  of  interest, 
selling  securities,  and  otherwise,  to  reduce  their  issues  and 
restore  the  exchange  to  par.  And  had  they  done  this  at 
a  sufficiently  early  period,  it  is  all  but  certain   the  bank 


104  HISTORY    OF   THE 

would  not  have  lost  more  than  two  or  three  millions  of 
bullion;  whereas,  by  their  following  a  different  line  of  con- 
duct, and  deferring  the  adoption  of  vigorous  repressive 
measures  till  too  late  a  period,  it  was  drained  of  about 
seven  millions  of  bullion,  and  its  safety  seriously  compro- 
mised before  it  could  stop  the  drain. 

The  speculative  rage  before  mentioned  was  not  with- 
out precedent.  The  South  Sea  Company  was  the  leader 
of  the  maddest  kind  of  schemes  and  speculations  England, 
or  in  fact  any  other  country,  ever  saw.  The  memorable 
project  for  the  formation  of  the  South  Sea  Company  was 
brought  out  in  the  year  i/ii,  and  owed  its  origin  to  the 
following  circumstances  :  — 

During  the  war  with  France,  in  the  reign  of  King 
William  the  Third,  the  payments  to  the  sailors  of  the  En- 
glish navy  being  neglected,  they  received  tickets  instead 
of  money,  and  they  were  frequently  obliged,  by  their  ne- 
cessities, to  sell  their  tickets  at  forty,  and  sometimes  fifty, 
per  cent,  below  the  amount  for  which  they  received  them. 
By  this  and  other  means  the  debts  of  the  nation  unpro- 
vided for  by  Parliament,  amounted  together  to  £9,4^1,- 
325.  Mr.  Ilarley,  at  that  time  Chancellor  of  the  Exche- 
quer, proposed  a  scheme  to  allow  the  holders  of  these 
tickets  or  debentures,  and  the  other  portion  of  the  float- 
ing debt,  six  per  cent,  per  annum  interest,  and  to  incorpo- 
rate them  for  the  purpose  of  carrying  on  a  trade  to  the 
South  Seas  ;  and  they  were  accordingly  incorporated 
under  the  title  of  the  Governor  and  Company  of  merchants 
of  Great  Britain,  trading  to  the  South  Seas  and  other  parts 
of  America,  and  for  encouraging  the  Fisheries. 

The  company  soon  abandoned  all  idea  of  mercantile 


BANK    OF    KNGLAND.  105 

operations— if  they  ever  seriously  intended  to  undertake 

*^i  them — and  confined  themselves  to  money  dealings  with 

W,  the  government,  and  increasing  the  value  of  their  stock, 

5  which  at  one  time  rose  to  the  enormous  amount  of  1,000 

per  cent. 

The  apparent  success  of  the  South  Sea  Compan 
scheme  caused  numerous  romantic  projects,  proposals  and 
undertakings,  both  private  and  national,  to  be  submitted 
to  the  public,  many  of  which  were  notoriously  absurd. 
Persons  of  rank  of  both  sexes  were  deeply  engaged  in 
these  bubbles  ;  avarice  prevailing  at  this  time  over  all 
consideration,  cither  of  dignity  or  equity,  the  gentlemen 
going  to  taverns  and  coffee-houses  to  meet  their  brokers, 
and  the  ladies  to  their  milliners'  and  haberdashers'  shops 
for  the  like  purpose. 

Any  impudent  imposter,  while  the  speculative  delir- 
ium was  at  its  height,  needed  only  to  hire  a  room  at  some 
coffee-house,  or  other  resort,  near  the  exchange,  for  a  few 
hours,  and  open  a  subscription  book  for  something  rela- 
tive to  commerce,  manufactures,  plantations,  or  some 
supposed  invention, newly  hatched  out  of  his  own  brain. 
These  delusive  projects,  a  list  of  some  of  the  most  ridicu- 
lous of  which  will  be  found  below,  received  their  first  check 
from  the  power  to  which  they  owed  their  birth,  viz.:  the 
South  Sea  Company,  the  directors  of  which,  desirious  to 
monopolize  all  the  money  of  the  speculators  to  themselves, 
obtained  writs  of  scire  facias  against  the  conductors  of 
the  bubbles. 

A  LIST  OF  THE  BUBBLES,  AS  PUBLISHED  IN  THE  YEAR  I72I. 
Hard  Soap. 
Potato  Starch. 


106  HISTORY    OF   THE 

Silver  Extract. 

Men's  Breeches. 

Fattening  Hogs. 

South  Sea  Hops. 

Swords  from  Iron. 

Bleaching  of  Hair. 

Butter  Manufactory. 

Overall's  Fire  Office. 

Employing  the  Poor. 

Fishery  for  Gudgeons. 

Suppression  of  Piracy. 

Improvements  of  Hops. 

Women's  Silk  Stockings. 

Ladies'  Hoop  Petticoats. 

Trade  to  the  North  Seas. 

Grand  American  Fishery. 

Grand  Fishery  for  Smelts. 

Improvements  in  Tobacco. 

Exportation  of  Old  Clothes. 

Insurance  Against  Burglars. 

Hurst's  Importation  of  Hair. 

Insuring  Children's  Fortunes. 

Insurance  Against  Highwaymen. 

A  New  Method  for  Cleaning  Streets. 

Serving  London  with  Hay  and  Corn. 

Curing  of  Broken  Winded  Horses  and  Mares. 

Melting  Sawdust  and  Shavings  into  Deal  Boards  of 
any  length  and  free  from  knots. 

The  bursting  of  these  bubbles  left  traces  of  misery 
and  distress  to  an  extent  hitherto  unknown  in  the  mone- 
tary world. 


BANK    OF    ENGLAND.  107 

The  credulity  of  the  British  public  at  this  period  was 
only  surpassed  by  the  impudence  of  the  inventor.  Men, 
without  any  capital  but  presumption,  proposed  and  carried 
out  companies  ;  and  when,  by  the  aid  of  an  important 
name  or  two,  obtained,  perhaps,  under  fraudulent  preten- 
ces, and  a  prospectus  full  of  specious  phraseology  and  defi- 
nite promises,  they  had  arrived  at  a  premium,  the  shares 
were  sold  and  the  associations  abandoned. 

In  a  satirical  novel  of  the  day,  a  bubble  company  to 
be  called  "  The  Gold,  Wine  and  Olive  Joint-Stock  Com- 
pany," is  supposed  to  be  projected.  From  the  writer's 
position,  it  is  very  probable  that  much  of  his  presumed 
fiction  was  facts.  "  All  we  have  to  do,"  says  one  of  the 
projectors,  *'  is  to  puff  our  shares  up  to  a  premium,  hum- 
bug the  public  into  buying  them,  and  then  let  the  whole 
concern  go  to  ruin."  There  was  also  presented  for  public 
favor  the  prospectus  of  a  company  to  drain  the  Red  Sea, 
in  search  of  the  gold  and  jewels  left  by  the  Egyptians,  in 
their  passage  after  the  Israelites,  Many  similar  jocculo- 
sities  were  in  circulation,  some  of  which  emanated  from 
the  members  of  the  Stock  Exchange,  always  alive  to  a 
sense  of  the  ridiculous.  But  it  is  impossible,  and  the 
experience  of  every  speculative  era  has  proved  it,  to  open 
the  eyes  of  men  who  are  making  large  profits.  Every  one 
appeared  to  get  rich  without  trouble.  The  price  of  all 
articles  increased  in  value.  Ten-fold  higher  terms  were 
paid  for  land,  with  the  view  of  building  on  it,  than  it  was 
worth, 

"  The  wildness  of  speculation,"  says  Knight's  History 
of  London,  "was  not,  however,  confined  to  joint-stock 
projects  ;    but  at  length  reached  to  commercial  produce 


lOS  HISTORY    OF   THE 

generally.  Money  was  abundant,  and  circulated  with 
rapidity.  Trices  and  profits  rose  higher  and  higher,  and, 
in  short, 

*  .\H  went  merry  as  a  marriage  bell.'  " 

The  newspapers  and  periodicals  of  the  day  could 
scarcely  contain  the  announcements  which  day  after  day 
poured  from  the  prolific  pens  of  schemers.  Shares  were 
issued  at  high  premiums;  loan  after  loan  was  taken  at 
high  rates;  but  high  as  they  were  contracted,  the  extrav- 
agant feeling  of  the  period  sent  them  all  higher.  The 
shopkeeper  ceased  to  toil,  that  he  might  become  suddenly 
rich.  The  merchant  embarked  his  capital  and  his  credit; 
the  clerk  risked  his  reputation  and  his  place,  to  obtain  a 
share  of  the  broad  golden  stream,  which  waited  to  be 
drunk.  The  broker  could  scarcely  find  time  to  execute 
his  commissions.  There  was  one  individual  who  looked 
calmly  on  during  the  progress  of  these  schemes  and  bub- 
bles, and  although  not  profiting  at  the  expense  of  the 
credulit}'  of  the  people  engaged  in  them,  had  reaped  an 
immense  fortune  by  foreseeing  at  their  commencement  the 
events  that  actually  occurred.  That  individual  was 
Thomas  Guy,  the  founder  of  Guy's  Hospital.  Mr.  Guy 
was  a  bookseller. 

We  have  before  stated  that  such  was  the  poverty  of 
the  Exchequer  at  the  latter  part  of  the  reign  of  King 
William  the  Third,  money  could  not  be  obtained  for  pay- 
ing the  seamen's  wages,  and  that  they  were  accordingly 
paid  by  tickets  or  debentures,  which,  from  their  necessi- 
ties, they  were  compelled  to  part  with  considerably  below 
their  nominal  value.  The  purchasers  of  these  tickets 
were  in  turn  obliged  to  sell  them;  and  at  one  lime  such 


BANK    OF    ENGLAND  109 

was  their  depreciation  that  they  fell  to  fifty  per  cent,  dis- 
count. 

Mr.  Guy,  having  been  a  thrifty,  saving  man,  had 
reaHzed  what  in  tliosc  days  was  considered  a  large  sum  of 
money;  and,  having  the  utmost  possible  confidence  in  the 
honor  and  integrity  of  the  government,  that  the  deben- 
tures would  one  day^and  that  at  no  distant  period — be 
paid  in  full,  was  one  of  the  first  to  set  an  example  of  in- 
vesting his  capital  in  government  securities,  by  purchasing 
a  considerable  quantity  of  this  "floating  debt,"  as  it  was 
then  called.  The  result  was  that  out  of  his  investments 
he  eventually  realized  several  million  pounds. 

The  cost  of  erecting  Guy's  Hospital  was  iT  18,793,  and 
of  endowing  it  £2ig,4.gg,  together  ^^238,292,  which  munif- 
icent gift,  during  his  lifetime,  was  a  much  larger  sum  than 
had  ever  before  been  dedicated  by  a  single  individual  to 
charitable  purposes.  It  even  rivalled  the  endowment  of 
Kings.  Thomas  Guy  died  December  27,  1724,  in  the 
eightieth  year  of  his  age.  Sixteen  years  before  his  death 
he  built  and  furnished  the  wards  in  St.  Thomas's  Hospital, 
for  the  reception  of  sixty-four  patients.  He  also  left  to 
the  managers  of  Christ's  Hospital  a  perpetual  annuity  of 
;^400  a  year  for  taking  in  four  children  annually.  He 
also  left  ;^i,ooo  to  be  appropriated  in  relieving  from  prison 
those  prisoners  whose  debts  did  not  exceed  ^5  each,  by 
which  bequest  six  hundred  obtained  their  liberty.  He 
also  provided  liberally  for  his  relatives. 

Although  the  above  account  does  not,  strictly  speak- 
ing, fall  within  the  range  of  subjects  marked  out  for  this 
work,  we  could  not  refrain  from  referring  to  a  character  so 
truly  estimable  and  charitable  as  that  of  Thomas  Guy, 


110 


HISTORY    OF   THE    BANK    OF   ENGLAND, 


whose  beneficence  is  still  dispensed  with  the  same  gen- 
erous sympathy  for  the  afflicted  as  it  was  upwards  of  one 
hundred  and  sixty  years  ago. 


CHAPTER  VIII. 


LOOSE  BANKING  METHODS  PARALYZE  BUSINESS. 

Improving  Country  Banking — Suppressing  £i  Notes — 
Repealing  Laws — Circulation  of  Notes  for  Less  thati 
£^  Forbidden  —  Speculative  Schemes  Again  in 
Abundance — Rage  for  Establishing  Nczv  Banks —  Vol- 
uminous Issue  of  Notes — Raising  the  Rate  of  Interest 
— Shock  to  Industrial  Undertakings — How  the  Bank 
of  England  Escaped  Failure — Natural  Obstacle  to 
Formation  of  New  Banks — The  Railway  Mania — 
Gigantic  Frauds  Perpetrated  by  Projectors  of  Imag- 
inary Railroads —  TJie  Country  Wild  with  Speculation 
—  The  Crash  Wrecks  Thousands — A  Ba?ikers  Duty — 
TJie  Penalty  of  Neglect. 


Notwithstanding  the  fact  that  nations  are  slow  and 
reluctant  learners,  the  events  of  1825-26,  taken  in  connec- 
tion with  those  of  the  same  sort  that  had  previously 
occurred,  produced  a  conviction  of  the  necessity  of  doing 
something  that  should  at  least  improve  the  system  of 
country  banking  in  England.     But  the  measures  adopted 


1  12  mSTOKV    OF    THE 

with  this  view  were  very  far  indeed  from  effectually  secur- 
ing their  object.  The  law  of  1708,  limiting  to  six  the 
number  of  partners  in  banking  establishments  issuing 
notes,  was  repealed;  and  it  was  enacted,  that  banks  with 
any  number  of  partners  might  be  established  for  the  issue 
of  notes  anywhere  beyond  sixty-five  miles  from  London, 
and  that  banks  not  issuing  notes  might  be  established  in 
London  itself  with  any  number  of  partners.  The  circulation 
of  notes  for  less  than  five  pounds  in  England  and  Wales 
was  at  the  same  time  forbidden.  It  was  intended  to 
extend  the  same  prohibition  to  Scotland  and  Ireland,  but 
the  opposition  to  the  proposal  excited  in  these  countries 
was  too  strong  to  be  overcome.  Sir  Walter  Scott  threw 
himself  zealously  into  the  controversy,  and  by  his  Letters 
of  Malachi  Malagrowther,  helped  to  make  the  resistance 
effectual. 

The  suppression  of  ^i  notes  was  advantageous  in 
shutting  up  one  of  the  principal  channels  by  which  the 
inferior  class  of  country  bankers  got  their  paper  into  cir- 
culation, to  the  frequent  loss  of  the  poorer  classes;  but  it 
is  now  generally  admitted  that  the  balance  of  argument  is 
in  favor  of  the  issue  of  notes  of  this  denomination  by  the 
l^ank  of  England  or  some  agency  of  the  state,  under  con- 
ditions ensuring  their  convertibility. 

The  second  branch  of  the  banking  legislation  of  1826 
was  for  some  time  a  comparative  failure.  Those  who  sup- 
posed that  joint-stock  banks  would  be  immediately  set  on 
foot  in  all  parts  of  England,  were  a  good  deal  disappointed 
with  the  slowness  with  which  they  spread  for  some  years 
after  the  Act  permitting  their  establishment  was  passed. 
Tlie  heavy  losses  occasioned  by  the  downfall  of  most  of 


RANK    OK    EiVGLAND.  113 

the  joint  stock  projects  set  on  foot  in  1824  and  1825,  made 
all  projects  of  the  same  kind  be  looked  upon  for  a  consid- 
erable period  with  suspicion,  and  deterred  most  persons 
from  embarking^  in  them.  15ut  this  caution  gradually 
wore  off;  and  the  increasing  prosperity  of  the  country, 
and  the  difficulty  of  investing  money  so  to  obtain  from  it 
reasonable  return,  generated  anew  a  disposition  to  adven- 
ture in  hazardous  j^rojects.  A  mania  for  embarking  in 
speculative  schemes  acquired  considerable  strength  in 
1834;  and  during  1835  and  part  of  1836,  it  raged  with  a 
violence  but  little  inferior  to  that  of  1825,  which  is  describ- 
ed in  a  previous  chapter.  It  was  at  first  principally 
directed  to  railroad  projects;  but  it  soon  began  to 
embrace  all  sorts  of  schemes,  and,  among  others,  joint- 
stock  banks,  of  which  an  unprecedented  number  were  pro- 
jected in  1835.  The  progress  of  the  system  was  as  fol- 
lows : — 

Banks. 

In  1826  there  were  registered 6 

In  1827 I 

In  1828 5 

In  1829 4 

In  1830 3 

In  183 1  8 

In  1832 10 

In  1833 13 

In  1834 8 

In  1835  45 

In  1836 II 

Total  114 


1  14  HISTORY    OF   THE 

In  point  of  fact,  however,  the  number  of  banks  created 
in  1S35  and  1836  was  vastly  greater  than  appears  from 
this  statement.  It  seems  that,  at  an  average,  each  of  the 
56  banks  estabUshed  in  those  years,  like  those  previously 
established,  had  from  four  to  five  branches;  and  as  these 
branches  transacted  all  sorts  of  banking  business,  and 
enjoyed  the  same  credit  as  the  parent  estabhshment,  from 
which  they  were  frequently  at  a  great  distance,  they  were, 
to  all  intents  and  purposes,  so  many  new  banks;  so  that, 
instead  of  56,  it  may  safely  be  affirmed  that  from  about 
220  to  280  new  joint-stock  banks  were  opened  in  England 
and  Wales  in  1835  and  1836,  but  mostly  in  the  former 
year. 

In  January,  February,  and  March,  1836,  when  the  rage 
for  establishing  joint-stock  banks  Avas  at  its  height,  the 
exchange  was  either  at  par,  or  nearly  so,  showing  that  the 
currency  was  already  up  to  its  level,  and  that  if  any  con- 
siderable additions  were  made  to  it,  the  exchange  would 
be  depressed,  and  a  drain  for  bullion  be  experienced.  But 
these  circumstances,  if  ever  they  occurred  to  the  mana- 
gers of  the  joint-stock  banks,  do  not  seem  to  have  had,  and 
could  not  in  truth  be  expected  to  have,  any  material  in- 
fluence over  their  proceedings.  Their  issues,  Avhich 
amounted  on  the  26th  of  December,  1835  to  i^2, 799,551, 
amounted  an  the  25th  of  June,  1836,  to  ^3,588,064,  exclu- 
sive of  the  vast  mass  of  additional  bills,  checks,  and  other 
substitutes  for  money  they  had  put  into  circulation.  The 
consequences  were  such  as  every  man  of  sense  might  have 
foreseen.  In  April,  1836,  the  exchange  became  unfavor- 
able, and  bullion  began  to  be  demanded  from  the  Bank  of 
England.     The  directors,  that  they  might  the  better  meet 


I 


BANK    OF    ENGLAND.  115 

the  drain,  raised  the  rate  of  interest  in  June  from  4  to  4I 
per  cent.,  and  this  not  being  enough  to  sufficiently  lessen 
the  pressure  on  the  bank  for  discounts,  they  raised  it  in 
August  from  42  to  5  per  cent.  But  during  the  whole  of 
this  period  the  country  banks  went  on  increasing  their 
issues;  and  the  issues  of  the  joint-stock  banks  rose  from 
^3,588,064  in  June,  to  no  less  than  ^4,258,197  on  the  31st 
of  December,  being  an  increase  of  nearly  20  per  cent,  after 
the  exchange  was  notoriously  against  the  country;  and 
the  most  serious  consequences  were  apprehended  from 
the  continued  drain  for  bullion. 

It  may,  perhaps,  be  supposed  that  the  increased  issue 
of  the  joint-stock  banks  would  be  balanced  by  a  corres- 
ponding diminution  of  the  issue  of  the  private  banks,  and 
that  on  the  whole  the  amount  of  their  joint  issues  might 
not  be  increased.  This,  however,  was  not  the  case.  Some 
private  banks  were  abandoned  in  1836,  and  others  incor- 
porated with  joint-stock  banks  ;  and  it  is  further  true, 
that  those  which  went  on  managed  their  affairs  with  more 
discretion  than  their  associated  competitors.  But,  from 
the  26th  of  September,  1835,  to  the  31st  of  December,  1836, 
the  issues  of  the  private  banks  were  diminished  only 
;^i 59,087,  whilst  those  of  the  joint-stocks  were  increased 
during  the  same  period  ^^1,750,160,  or  more  than  ten  times 
the  falling  off  in  the  others. 

These  statements  show  the  inexpediency  of  leaving 
the  issue  of  paper  to  the  unregulated  discretion  of  an 
indefinite  number  of  competing  banks.  Its  issue  ought  in 
all  cases  to  be  governed  by  the  state  of  the  exchange,  or 
rather,  as  already  stated,  by  the  influx  and  efflux  of  bul- 
lion.    But  previously  to  1844,  the  provincial  banks  might 


116  HISTORY    OF   THE 

go  on  over-issuing  for  a  lengthened  period  without  being 
affected  by  a  demand  for  bullion,  or  even  for  Bank  of  En- 
gland paper.  In  the  end,  no  doubt,  an  afflux  of  the  former 
was  sure,  by  rendering  money  and  all  sorts  of  pecuniary  ac- 
commodation scarce  in  the  metropolis,  to  affect  the  country 
banks  as  well  as  the  Bank  of  England;  and  then  the  injury  to 
industry,  occasioned  by  the  withdrawal  of  their  accus- 
tomed accommodations  from  a  great  number  of  individ- 
uals, was  severe  in  proportion  to  the  too  great  liberality 
with  which  they  had  previously  been  supplied.  This  was 
especially  the  case  in  1836,  when  the  Bank  of  England,  by 
bolstering  up  neighboring  banks  averted  a  panic  that  would 
have  proved  fatal  to  nearly  every  joint-stock  and  private 
bank  in  England. 

Still,  the  shock  given  to  industrial  undertakings,  by 
the  revulsion  in  the  latter  part  of  the  year,  and  in  1837, 
although  unaccompanied  by  any  panic,  was  very  severe 
and  wide-spread.  All  sorts  of  commercial  speculations 
were  for  a  while  completely  paralyzed,  and  there  were  but 
few  districts  in  which  the  manufacturing  establishments 
were  not  closed,  and  thousands  upon  thousands  thrown  out 
of  employment.  In  Paisley,  Birmingham,  Manchester, 
Leeds  and  Sheffield  the  distress  occasioned  was  something 
terribleand  long  continued.  And  owing  to  the  Bank  of  En- 
gland having  delayed,  in  1838  and  the  earlier  part  of  1839, 
to  take  efficient  measures  for  the  reduction  of  its  issues, 
despite  the  unmistakable  evidence  of  their  being  redund- 
ant, the  bullion  in  its  coffers  was  reduced  in  September, 
1839,  to  ;^2,4o6,ooo  ;  and,  but  for  the  efficient  assistance 
obtained  from  the  Bank  of  France,  its  stoppage  could 
hardly  have  been  averted. 


BANK    OF    ENGLAND.  11  "7 

It  might  be  added  that  with  the  exception  of  Lon- 
don, and  some  of  the  larger  provincial  towns,  there  have 
been  very  few  banks  established  in  England  since  1836, 
eight  years  before  the  important  liank  Charter  Act  of 
1844,  which  we  treat  at  length  in  the  following  pages,  and 
of  the  banks  established  in  1835  and  1836,  very  many  were 
formed  by  the  conversion  of  pre-existing  private  banks 
into  joint-stock  associations.  The  truth  appears  to  be 
that  the  natural  obstacles  to  the  establishment  of  a  new 
bank  in  a  district  already  occupied  by  banks  and  bankers 
are  almost  insuperable.  A  bank  cannot  be  successful 
unless  it  commands  credit  ;  and  those  who  want  a  place 
of  safe  keeping  for  their  money  select  establishments  that 
have  been  tried  and  tested  through  long  years.  Hence,  it 
happens  that,  though  private  banks  of  long  standing  con- 
tinue in  esteem,  the  attempts  to  set  up  new  private  banks 
are  most  rare  ;  and,  unless  the  wealth  and  prosperity  of  a 
neighborhood  have  rapidly  developed,  so  that  capitalists 
have  risen  to  prominence  in  it  who  are  not  connected  as 
shareholders  or  directors  with  existing  banks,  it  is  not 
easy  to  form  joint  stock  associations  of  weight  enough  to 
compete  with  the  institutions  in  possession  of  the  field. 

The  history  of  the  railway  mania  in  England  in  1845 
is  not  the  least  remarkable  among  those  delusions  which 
from  time  to  time  arise  to  throw  aside  legitimate  trade, 
and  paralyze  national  commerce.  In  1842  discounts  were 
easy  and  money  plentiful.  The  funds  maintained  a  high 
rate  ;  and  low  interest  only  could  be  obtained.  In  1844 
it  was  remarked  that  there  had  been  a  longer  continuance 
of  a  plentiful  supply  ot  money  than  had  occurred  in  the 
memory  of  the  oldest  capitalist.     A  desire  to  speculate 


118  HISTORY    OF   THE 

grew  out  of  these  circumstances.  Unlike  most  periods, 
when  this  desire  has  been  spread  over  many  objects,  it 
was  concentrated  on  railways  and  railway  schemes  ;  and 
England  was  again  seized  with  her  ancient  frenzy  that 
wrought  so  much  havoc  in  1825.  For  some  time  it  was 
legitimate,  and  confined  within  its  proper  boundary — but 
the  desire  spread — the  contagion  passed  to  all,  and  from 
the  clerk  to  the  capitalist  the  speculative  fever  reigned, 
uncontrollable  and  uncontrolled.  Some  portion  of  the 
press  aided  the  mania.  The  subject  was  a  capable  one, 
and  leading  articles  trumpeted  the  growing  greatness  of 
the  train. 

The  directors  of  the  railways  were  formed  of  all 
classes,  and  of  all  conditions.  Long  lists  of  provisional 
committeemen,  with  their  residences  and  professions,  were 
paraded  in  the  newspapers.  The  journals  were  in  many 
instances  increased  in  size  to  contain  the  numerous  adver- 
tisements. Men  who  had  mingled  in  the  bubbles  and 
schemes  of  1825  ;  men  who  were  known  and  recognized 
as  adventurous  swindlers,  but  who  had  disappeared  when 
no  money  was  to  be  obtained,  reappeared  to  exercise  their 
customary  vocation.  Royalty  partook  of  the  excitement. 
Grave  and  sober  men  dabbled  in  scrip.  The  literary  man 
and  the  artist  risked  their  hard-earned  money  to  procure 
a  share  in  the  profits.  The  youth  of  the  empire  sought  to 
gratify  expensive  habits.  The  old  man  sought  to  indulge 
his  avarice.  The  clergyman  traded  in  "undeniable  secur- 
ities." The  physician  murmured  of  the  broad  and  narrow- 
guase.  The  lawyer  forsook  his  fee  ;  the  lady  jeopardized 
her  soft  and  gentle  influence  ;  the  matron  forgot  her  chil- 
dren, and  the  maiden  her  embroidery,  in   one   universal 


KANK    OF    ENGLAND. 


119 


pursuit.  The  names  of  the  clergy  on  the  lists  of  directors 
produced  an  opinion  from  the  Bishop  of  Exeter,  that  for 
a  clergyman  to  speculate  in  railways  came  under  the 
denomination  of  "  dealing  for  gain  or  profit,"  and  this  was 
against  the  statute.  "As  the  statute  only  mentions  deal- 
ing," remarked  a  journal  of  the  time,  "and  railway  specu- 
lation involves  shuffling,  some  of  the  reverend  gentlemen 
maintain  that  they  do  not  violate  the  Act  of  Parliament." 

The  following  from  a  periodical  of  the  day,  is  undoubt- 
edly a  faithful  picture  of  the  way  in  which  many  railways 
were  established: — 

"  A  young  gentleman  need  only  look  to  a  half-crown 
railway  map,  and  search  for  a  district  tolerably  clear  of 
the  rail.  Taking  two  of  the  towns  that  form  that  open 
space,  he  draws  a  diagonal  with  his  pencil,  and  thus 
creates  a  direct  line.  He  then  writes  down  the  name  of 
the  company,  his  own  name  as  *  promoter,'  either  alone,  or 
with  the  names  of  as  many  friends  as  he  can  venture  to 
take  that  liberty  with,  or  with  any  names,  real  or  fictitious; 
his  own  occupation,  whether  gentleman  or  esquire,  engi- 
neer, artist,  merchant,  lawyer,  clerk  or  tailor  ;  his  place  of 
business  if  he  has  one.  In  his  walks  about  town  he  may 
remodel  his  company,  changing  every  name  in  it,  whether 
of  place  or  person,  including  himself.  Arriving  at  his 
of^ce,  he  invests  a  few  sovereigns,  begged,  borrowed,  or 
stolen,  in  fees,  and  enters  his  company.  Advertisements 
and  letters  of  allotment  do  the  rest.  It  may,  for  anything 
the  registrar  knows  or  cares,  be  straight  across  a  moun- 
tain, a  mile  high,  or  straight  across  the  arm  of  a  sea,  ten 
miles  broad.  It  would  be  his  duty  to  register  a  tunnel 
under  the  Atlantic ;    and  we  are  not  quite  sure  that  he 


120  HISTORY    OV    THE 

would  have  the  option  of  refusing  a  railroad  to  the  moon, 
with  extension  to  the  planets,  and  a  short  branch  to  the 
sun." 

The  prospectus  was  sure  to  promise  all  the  advan- 
tages of  all  the  world,  perhaps  to  some  small  village  which 
had  hitherto  been  unable  to  support  a  coach  once  a  week. 
The  name  of  a  local  person  of  influence  was  obtained  ; 
a  meeting  was  called  at  the  village-  inn  ;  speeches  were 
uttered,  which  discoursed  most. eloquent  music  in  the 
cars  of  the  villagers,  for  their  property  was  to  be 
improved,  and  their  importance  doubled.  Propositions 
were  unanimously  carried  with  a  wild  huzza  that  a  rail- 
way was  necessary;  the  speeches  appeared  in  the  local 
journals  with  flaming  head  lines  and  were  prominently 
advertised  in  London  newspapers;  ten  times  the  number 
of  shares  were  applied  for  which  were  issued;  and  when 
they  arrived  at  a  premium,  the  promoters,  secretaries,  and 
directors  seized  the  golden  opportunity,  and  as  usual,  the 
dear  public  came  off  second  best.  The  socializing  influ- 
ences of  the  railway  were  descanted  upon.  Directors 
dreamed  of  premiums,  patronage  and  pay.  "Men  who 
were  known  to  have  been  penniless,"  writes  a  keen 
observer  of  that  day,  "suddenly  kept  their  liveried  servants 
and  broughams,  valuable  diamonds  gleamed  from  their 
fingers  which  had  hitherto  been  guiltless  of  the  bright 
adornment.  Railway  papers  and  railway  pantaloons,  rail- 
way ties  and  railway  tricks,  abounded.  It  was  a  railway 
madness.  London  was  to  be  tunnelled.  The  names  of 
men  well  known  in  London  as  swindlers  whose  notorious 
character  had  banished  them  from  the  society  of  all  good 
men,  suddenly  reappeared  on  the  lists  of  the  proprietors 


BANK    OF    ENGLAND.  -         121 

and  directors,  their  names  graced   by   the    cheap   esquire, 
and  their  residences  given  in  some  far  distant  country." 

Everyone  talked  of  making  large  fortunes,  and  very 
few  realized  them.  The  same  person  was  director  of 
thirty  different  railways,  under  various  descriptions.  The 
crash  finally  came.  Twelve  "leading  men"  in  the  city 
brought  out  a  project  for  a  railway.  The  deposit  was 
trifling,  but  their  standing  enabled  them  to  demand 
a  heavy  premium.  They  cleared  by  this  ^^"25,000  each, 
and  shortly  afterwards  sent  round  a  circular,  stating  that 
unforeseen  engineering  difficulties  rendered  the  abandon- 
ment of  the  scheme  necessary,  and,  with  a  trifling  per 
centage  deducted  for  expenses,  the  deposits,  not  the 
premiums,  were  returned.  An  endeavor  at  the  time  to 
establish  the  truth  of  this  produced  the  reply:  "It  is  likely 
to  be  true  of  so  many  that  it  will  be  useless  t.o  fix  it  upon 
any  particular  company."  The  panic  continued.  The 
reckless  speculation  produced  its  natural  results.  The 
evil  commenced  to  abate.  The  fluctuations  in  the  peri- 
odical returns  of  the  Bank  of  England  were  eagerly 
watched  ;  and  each  week  the  apparent  impossibility  of 
paying  up  the  deposits  was  confirmed.  It  was  what  has 
been  finely  termed' "the  rushing  mania  of  a  nation." 

Of  this  prevailing  madness,  however,  the  evil  effects 
remained  long  after  the  hope  had  departed.  Many  men 
of  character,  who  had  worked  hard  for  the  independence 
they  had  gained,  had  consented  in  an  evil  hour  to  join  the 
committees  of  projected  companies;  in  the  height  of  their 
delusion  they  talked  of  large  profits,  made  extensive  pur- 
chases, and  lived  in  a  costly  style;  but  they  soon  found 
out  that   they  were  liable  for  their   indi^vidual   risk,   and 


122  HISTORY    OF     THE 

many  were  compelled  to  sell  their  property  at  a  sacrifice 
and  fly  to  a  foreign  soil,  from  their  relentless  creditors. 
In  one  instance,  a  person  who  had  stepped  out  of  his 
legitimate  path  to  speculate  in  these  securities,  was  pay- 
ing 200  per  cent,  in  the  stock  Exchange  at  the  very 
time  that  his  bills  were  being  taken  at  3>i$  per  cent,  in  the 
discount  market.  Railway  shares  and  stocks  suddenly 
became  worthless.  The  wild  speculative  excitement 
ended.  It  was  another  proof  of  the  fact  that  no  warning 
can  save  a  people  determined  to  grow  suddenly  rich. 
The  small  trader  who  had  neglected  his  calling  was 
ruined.  The  merchant  who  had  embarked  in  the  adven- 
turous speculations  found  to  his  cost  that  the  reckoning 
was  yet  to  come.  The  deposits  were  to  be  met,  and 
many  possessed  no  money  wherewith  to  pay  them. 
They  had  embarked  in  engagements  which  they  could 
not  fulfill,  and  a  fearful  prospect  awaited  them.  Every- 
one who  invested  suffered  ;  a  few  audacious  scoundrels 
became  wealthy ;  and  a  period  of  depression  followed 
that  has  never  been  equaled.  Through  this  memorable 
crisis  the  Bank  of  England  played  an  important  though 
successful  part. 

Bankers  possess,  from  their  peculiar  position,  very 
superior  means  of  distinguishing  the  careful  from  the  im- 
provident trader  ;  indeed,  it  is  considered  as  a  regular 
branch  of  their  professional  experience,  that  they  should 
appreciate  the  credit  of  the  various  traders  within  the 
district  which  their  business  transactions  are  supposed  to 
cover.  It  is  becoming  now  the  practice  of  bankers  to 
communicate,  confidentially,  with  each  other,  touching 
the  credit  of  individuals  and  firms  within  their  bailiwicks. 


liAXK    OF    KNGLAND,  123 

A  banker,  in  his  character  as  trustee  for  others,  should 
be  at  all  times  a  man  of  decision,  and  have  a  general 
knowledge  of  the  respectability  and  responsibility  of  the 
mercantile  community,  especially  of  his  own  neighborhood. 
The  science  of  banking  is  not  intuitive;  there  is  no  golden 
road  to  it.  A  man  may  be  rich  and  powerful  in  his  neigh- 
borhood, and  looked  up  to  as  a  man  of  wealth;  but,  as  the 
taking  care  of  his  own  estate  is  not  banking,  his  character 
as  a  banker  only  commences  when  he  has  to  take  care  of, 
and  judiciously  employ,  the  moneys  of  other  people 
entrusted  to  him. 

It  is  by  neglecting  to  watch  narrowly  the  operations 
of  commercial  men,  that  bankers  are  too  often  instru- 
mental in  causing,  not  only  the  failure  of  their  customers, 
but  of  themselves  also.  To  avoid  as  much  as  possible 
this  state  of  things,  a  banker  should,  at  the  proper  time, 
be  able  to  negative  the  applications  made  to  him  for 
assistance,  and  on  no  account  to  allow  feelings  of  personal 
nature  to  get  the  better  of  his  judgment. 

Most  bankers  in  the  country  carry  on  their  business 
of  borrowing  or  receiving  money  at  interest,  as  well  as 
lending  upon  securities,  and  they  thereby  form  a  connect- 
ing link  in  the  chain  between  the  operative  and 
unoperative  classes  ;  they  become  the  debtors  of  the  cap- 
italists and  the  creditors  of  the  producers  or  distributors 
of  revenue,  and  thus  afford  a  ready  medium  of  adjustment 
between  the  interests  of  these  two  great  divisions  of 
society.  It  is  therefore  the  chief  object  of  his  study,  and 
his  constant  desire  to  search  out  and  to  make  choice  of 
the  most  secure,  as  well  as  the  most  profitable  em- 
ployment  of   the   capital    which    is   thus    placed    under 


124  HI.STORV    OK    THE    I'.ANK    Ol'    KNCLAND. 

his  charge,  and  for  the  safety  of  which  he   is  held  respon- 
sible. 


I 


CHAPTER   IX. 


BANK  OF  ENGLAND  HANDLED  BY  PARLIAMENT. 

The  Famous  1S4.4  Bank  Act — Sir  Robert  Peel  Battling 
for  Reform- — Providing  a  Remedy  /or  Instability — 
Financial  Writers  Interested — Peel's  Speech  on  the 
Renezval  of  the  Bank's  Charter — Important  Provisions 
of  the  New  Law — Price  Paid  for  Exclusive  Privilege 
of  Banking — Suspending  the  Baiik  Act  in  1866 — 
Fiindamoital  Principle  upon  zvJiich  English  Ctirrency 
Rests —  TJie  Lazv  and  the  Bank —  The  Batik's  Control 
of  Its  Capital. 


The  position  of  the  country  in  1844  was  indeed 
critical.  A  feeling  of  discontent  was  prevalent  among  the 
agrarian  and  manufacturing  population.  An  empty  treas- 
ury, a  failing  revenue,  and  a  dissatisfied  people,  were 
sufficient  to  render  the  government  of  the  nation  a  diffi- 
cult task.  The  labors  of  the  officers  of  the  bank  was 
greatly  increased  by  the  deduction  of  the  property  tax 
from  more  than  half  a  million  of  dividends  belonging  to 


120  HISTORY    OF   THE 

the  public  creditor,  and  the  interests  of  the  bank  were  yet 
more  deeply  involved  in  this  tax,  as  it  opened  the  question 
with  regard  to  the  justice  of  paying  the  charges  upon 
terminable  annuities.  In  many  instances  these  annuities 
would  expire  in  a  very  few  years;  and  in  the  case  of  the 
bank,  which  possessed  the  dead  weight  and  other  annui- 
ties, entered  into  without  any  idea  of  such  a  tax,  it 
appeared  to  the  proprietors  a  very  objectionable  impost. 
It  was  argued  by  these  gentlemen  that  it  would  not  be 
equitable  to  compel  them  to  pay  the  income  tax  on  annu- 
ities, as  it  would  be  in  reality  paying  on  the  capital.  It 
was  resolved  to  memorialize  the  government  on  the 
question,  but  the  attempt  was  vain,  and  it  was  determined 
that  no  difference  should  be  made  between  the  dividend 
of  the  bond-holder  and  the  payment  of  the  annuitant. 

The  advent  of  Sir  Robert  Peel  to  power,  in  1842,  was 
a  circumstance  of  some  importance  to  the  Bank  of  England. 
The  powerful  majority  by  which  he  was  supported  render- 
ed it  almost  undoubted  that  he  would  maintain  the 
position  in  which  he  had  been  placed  by  the  country, 
when  the  expiration  of  the  first  ten  years  allowed  by  the 
charter  for  the  continuance  of  the  privileges  of  the  corpor- 
ation should  arrive.  It  was  almost  equally  certain  that 
he  would  modify  the  principles  on  which  it  had  hitherto 
been  founded,  according  to  his  own  views  of  the  necessi- 
ties of  the  monetary  world.  The  Bank  Act  of  1844; 
marked  an  important  era  in  the  management  and  business 
of  the  Bank  of  England. 

On  each  renewal  of  the  charter  the  management 
sought  to  have  incorporated  in  the  laws  for  its  govern- 
ment more  liberal  provisions  than   were  accorded  to  or 


BANK    OF    EXGI-AND.  127 

asked  by  any  other  banking  institution.  In  some  instances 
the  bank  was  successful.  Although  a  private  enterprise, 
the  Bank  of  England  is  generally  regarded  as  a  literal  cog 
in  the  wheel  of  England's  financial  machinery. 

Perhaps  nowhere  in  the  world  does  the  history  of 
banking  show  greater  instability  than  in  England,  where 
during  this  century  joint-stock  banks  have  failed  by  the 
scores.  Their  profits  in  many  instances  have  been  very 
large,  but  their  risks  being  correspondingly  great,  their 
failures  have  been  most  disastrous.  Greater  freedom  has 
always  existed  in  Scotch  banking  than  in  that  of  England, 
and  consequently  there  has  been  greater  security— those 
institutions,  unlike  the  great  monopoly,  trading  upon 
their  capital. 

The  fluctuating  and  vascillating course  pursued  by  the 
bank  and  its  managers  had  attracted  the  attention  of  a 
number  of  able  financial  writers,  prominent  of  whom  were 
Lord  Overstonc,  Colonel  Torrens,  Mr.  Norman,  and 
others. 

They  maintained  and  enunciated  the  following  prin- 
ciples:— 

I.— That  bank  notes,  i.  e.,  the  promise  of  bankers  to 
pay  money  on  demand,  alone  are  "currency,''  and  that  no 
other  forms  of  paper  credit  are  currency. 

2. — That  if  banks  are  permitted  to  issue  notes  they 
ought  to  be  only  exactly  in  amount  to  what  the  specie 
would  have  been  if  there  were  no  notes. 

3. — That  any  excess  of  notes  above  the  specie  th 
displace  is  a  depreciation  of  the  currency. 

The  above  named  writers  being  men  of  great  influence, 
converted    Sir   Robert    Peel   to   their  views,  and   on  the 


128  HISTORY    OF    THK 

renewal  of  the  charter  of  the  bank  in  1844,  Sir  Robert 
Peel,  then  prime  minister,  having  become  satisfied  of  the 
dangerous  influence  exerted  in  the  bank's  ever  varying 
and  never  stable  system,  first  of  expansion  and  then  of 
contraction,  in  its  laws,  thought  to  provide  a  remedy. 
The  principal  feature  of  this  measure  was  to  limit  the 
circulation  so  that  it  would  be  regulated  by  the  amount  of 
coin  and  bullion  in  the  vaults  of  the  institution. 

Accordingly,  he  brought  in  a  bill  which  became  a  law 
on  July  19,  1844,  entitled  "An  act  to  regulate  the  issue  of 
bank  notes,  and  for  giving  to  the  governor  and  company 
of  the  Bank  of  England  certain  privileges  for  a  limited 
period." 

In  a  speech  in  the  House  of  Commons  on  May  6,  1844, 
on  the  renewal  of  the  bank  charter,  Sir  Robert  Peel 
said:  — 

"With  respect  to  the  banking  business  of  the  bank,  I 
propose  that  it  should  be  governed  on  precisely  the  same 
principles  as  would  regulate  any  other  body  dealing  with 
Bank  of  England  notes.         -^         -:r         *         *         * 

"It  is  said  the  Bank  of  England  will  not  have  the 
means  which  it  has  heretofore  had  of  supporting  public 
credit,  and  of  affording  assistance  to  the  mercantile  world 
in  times  of  commercial  difficulty.  Now,  in  the  first  place, 
the  means  of  supporting  credit  are  not  means  exclusively 
possessed  by  banks.  All  who  are  possessed  of  unemploy- 
ed capital,  whether  bankers  or  not,  and"  who  can  gain  an 
adequate  return  by  the  advance  of  capital,  are  enabled  to 
afford,  and  do  afford,  that  aid  which  it  is  supposed  by 
some  that  banks  alone  are  enabled  to  afford.  In  the 
second  place,  it  may  be  a  question  whether  there  be  any 


BANK    OF    EN'GI.AND.  129 

permanent  advantage  in  the  maintenance  of  private  or 
public  credit,  unless  the  means  of  obtaining  it  are  derived 
from  the  bona  fide  advance  of  capital,  and  not  from  a  tem- 
porary increase  of  promissory  notes  issued  for  a  special 
purpose.  Some  apprehend  that  the  proposed  restrictions 
upon  issue  will  diminish  the  power  of  the  bank  to  act  with 
energy  at  the  period  of  monetary  crisis  and  commercial 
alarm  and  derangement;  but  the  object  of  the  measure  is 
to  prevent  (so  far  as  legislation  can  prevent)  the  recur- 
rence of  those  evils  from  which  we  suffered  in  1825,  1836, 
and  1839.  It  is  better  to  prevent  the  paroxysm  than  to 
excite  it,  and  trust  to  desperate  remedies  for  the  means 
of  recovery." 

The  machinery  adopted  was  as  follows  :  The  bank 
was  divided  into  two  departments.  The  Issue  Depart- 
ment, and  the  Banking  Department. 

Following  is  the  law  as  finally  enacted  for  the  guid- 
ance of  the  Bank  of  England: 

I.— Provides  for  "  the  issue  department  of  the  Bank 
of  England,"  which  shall  provide  the  notes  payable  on 
demand,  and  shall,  from  August  31,  1844,  be  kept  wholly 
separate  and  distinct. 

2. — That  on  August  31,  1844,  the  bank  shall  transfer 
to  the  issue  department  securities  to  the  value  of  fourteen 
millions,  the  debt  due  by  the  public  to  be  deemed  part  ; 
that  the  banking  department  shall  transfer  to  the  issue 
department  all  the  gold  coin  and  gold  and  silver 
bullion  not  required  ;  that  the  issue  department  shall 
deliver  to  the  banking  department  such  an  amount  of  notes 
as  with  those  in  circulation  shall  equal  the  securities, 
coin,  and  bullion  transferred    to   the    issue    department ; 


130  HISTORY    OF   THE 

that  the  bank  may  not  increase,  but  diminish  the  amount 
and  again  increase  it  to  any  sum  not  exceeding  fourteen 
millions. 

3. — That  the  bank  shall  not  retain  in  its  issue  depart- 
ment at  one  time  silver  to  any  amount  greater  than  one- 
fourth  the  gold  held  at  the  same  time. 

4. — That  notes  may  be  demanded  for  gold  bullion  at 
the  rate  of  ;^3  17 s.  <^d.  per  oz.  of  standard  gold. 

5. — Provides  for  a  weekly  statement  of  the  affairs  of 
the  bank. 

6. — That  the  bank  shall  be  exempt  from  stamp  duty 
on  its  notes. 

7. — That  the  bank  allow  ;^  180,000  per  annum  out  of 
the  amounts  payable  by  government  for  the  exclusive 
privileges  of  banking. 

8. — That  the  public  shall  receive  such  profits  as  may 
be  obtained  by  an  increase  of  circulation,  beyond  the 
amount  provided  in  paragraph  2. 

9. — That  no  other  banks  of  issue  be  allowed,  but  such 
as  were  in  existence  May  6,  1844. 

10. — That  no  bank  in  England  or  Wales  shall  issue 
any  bill  of  exchange  or  promissory  note  payable  on 
demand,  excepting  such  bankers  as  were  in  existence 
May  6,  1844.  That  no  company  now  consisting  of  six  or 
less  than  six  partners  shall,  if  they  exceed  that  number, 
be  allowed  to  issue  notes. 

By  an  Act  passed  the  same  year,  with  reference  to 
joint-stock  banks  in  England,  so  many  restrictive  clauses 
were  introduced  as  practically  to  prevent  any  new  institu- 
tions of  the  kind  from  being  established.  Since  then 
more  liberal  measures  have  been  enacted  recognizing  lim- 


BANK    OF    ENGLAND.  131 

ited  liability,  and  under  it  many  institutions  are  in  suc- 
cessful operation  throughout  the  United  Kingdom. 

It  is  needless  to  recapitulate  the  various  Acts  of  Par- 
liament which  affected  the  Bank  of  England  during  the 
first  one  hundred  and  fifty  years  of  its  existence.  Its 
operations  were  yearly  assuming  greatly  increased  pro- 
portions. The  Act  of  1844,  which  regulated  the  bank 
note  issues  of  the  country,  also  prescribed  the  conditions 
in  accordance  with  which  the  bank  is  now  conducted. 

A  minute  and  extended  discussion  of  the  provisions 
of  the  Act  would  not  be  particularly  interesting  or  instruc- 
tive, but  those  parts  which  affect  the  constitution  of  the 
bank  are  : — 

1st.  Those  which  created  the  "  Issue  Department," 
by  means  of  which  the  issue  of  notes  is  distinctly  sepa- 
rated from  the  Banking  Department. 

2d.  Those  limiting  the  issue  of  notes  to  such  a  sum 
as  the  bank  may  hold  in  bullion  (of  which  a  fifth  part  may 
be  silver),  in  addition  to  a  sum  of  ;^I4, 000,000,  increased 
since  that  date  to  iJ"  16, 200,000,  issued  on  securities,  where- 
of the  debt  due  by  the  public  to  the  Bank  formed  part.* 
And, 

3rd.  Those  compelling  the  bank  to  purchase  any 
amount  of  gold  offered  to  it  at  a  certain  fixed  rate  ;  or,  in 
other  words,  to  receive  in  deposit  any  quantity  of  gold  at 
a  certain  rate  in  exchange  for  bank  notes. 

The  Act  by  this  means  secures,  as  far  as   possible, 

that  gold  shall  be  the  basis  of  the  currency  of  the  country, 

*  Tha  Act  of  1844,  which  limited  the  note  issue  of  the  then  existing  pri- 
vate Banks,  provided  that  when  any  Issuing  Bank  relinquished  its  right  of 
issue,  the  Bank  of  England  might  increase  its  issue  on  securities  in  a  fixed 
proportion  to  the  amount  thus  withdrawn. 


132  HISTORY    OF    THE 

the  note  circulation  expanding  or  contracting  as  gold  in 
plentiful  or  scarce,  or  as  if  it  consisted  of  gold  only  ;  and 
also  acts  as  a  guarantee  to  the  general  note-holder  for  the 
convertibility  of  his  note.  This  last  is  assured  by  the 
special  constitution  of  the  Issue  Department,  where  the 
right  is  confirmed  of  demanding  at  any  moment  coin  for 
notes  ;  and,  further,  by  the  weekly  publication  of  the 
accounts  of  this  department,  which  explain  at  a  glance, 
and  in  the  simplest  language,  that  the  issue  of  the  notes 
is  the  same  as  the  bullion  of  which  the  bank  is  possessed 
in  this  department,  plus  the  ;^  16,200,000  issued  on  secur- 
ities. 

For  the  privileges  in  regard  to  the  issuing  of  bank 
notes,  and  for  exemption  from  duty  on  them,  the  bank 
now  pays  to  Government  a  sum  of  ;i^2 13,895  per  annum- 
The  bank,  however,  makes  no  additional  profit  on  any 
issue  beyond  ^^  14,000,000.  Although  the  amount  on  which 
notes  are  issued  on  security  has  been  raised  to  £16,200,- 
000,  the  profit  on  the  additional  sum  accrues  under  the 
Act  of  1844,  to  the  public,  and  hence  it  is  evident  that  the 
cost  of  every  note  issued  beyond  the  sum  of  ;{^  16,200,000 
is  a  direct  charge  on  the  bank  for  the  benefit  and  conven- 
ience of  the  public. 

It  was  eventually  demonstrated  that  Robert  Peel 
entirely  misapprehended  the  causes  at  work  in  producing 
the  fluctuations  complained  of,  and  that  he  applied  the 
restrictions  to  that  particular  branch  which  varied  but  lit- 
tle in  a  series  of  years.  The  real  cause  of  the  trouble  was 
to  be  found  in  the  loans;  which  have  been  irregular  in  the 
extreme  and  at  times  productive  of  great  injury.  This 
injury  has  not  alone  been  confined  to  Great  Britain,  but 


BANK    OF    ENGLAND.  133 

has  extended  in  a  greater  or  less  degree  to  every  country 
with  which  intimate  business  relations  existed.  That  the 
Peel  Act  had  no  effect  in  mitigating  the  evil,  will  be 
clearly  seen  in  the  fact  that  these  fluctuations  have  never 
been  more  violent  than  since  its  passage.  The  British 
public  had  long  shown  entire  confidence  in  the  circulating 
medium,  and  no  legislation  to  effect  this  object  was  neces- 
sary. Since  the  passage  of  the  law  it  has  several  times 
been  suspended,  as  no  doubt  it  will  be  again  whenever  it  is 
rendered  necessary  to  do  so.  One  of  the  suspensions  was 
on  May  1 1,  1866,  on  which  day  the  bank  raised  the  rate  of 
discount,  to  10  per  cent.,  it  having  been  6  per  cent,  nine 
days  before.  It  its  efforts  to  save  itself  and  comply  with 
the  absurd  provisions  of  the  bank  act,  it  spread  ruin  and 
desolation  around  it,  and  years  have  been  necessary  to 
enable  the  country  to  recover  from  the  effects  of  the  panic 
thus  created.  While  the  notes  of  the  bank  are  legal 
tender  elsewhere,  they  are  not  such  in  payments  by  the 
bank  itself.  ' 

The  notes  of  the  Bank  of  England  in  circulation  for 
some  years  previously  to  1844  rarely  amounted  to  twenty, 
or  sunk  so  low  as  sixteen  millions.  And  such  being  the 
case,  Sir  Robert  Peel  was  said  to  be  justified  in  assuming 
that  the  circulation  of  the  bank  could  not,  in  any  ordinary 
condition  of  society,  or  under  any  merely  commercial 
vicissitudes,  be  reduced  below  fourteen  millions.  The  law 
of  1844  allowed  the  bank  to  issue  this  amount  upon  secur- 
ities, of  which  the  /^i  1,015,100  lent  by  the  bank  to  the 
public  was  the  most  important  item.  Inasmuch,  however, 
as  the  issues  of  the  provincial  banks  were  at  the  same 
time  limited  in  their  amount,  and  confined  to  certain  ex- 


134  HISTORY    OF    THE 

isting  banks,  it  was  further  provided,  in  the  event  of  any 
of  these  banks  ceasing  to  issue  notes,  that  the  Bank  of 
England  might  be  empowered,  by  order  in  council,  to 
issue,  upon  securities,  two-thirds,  and  no  more,  of  the 
notes  which  such  banks  had  been  authorized  to  issue. 
Under  this  condition  the  total  secured  issue  of  the  bank 
was  increased.  But  for  every  other  note  which  the  issue 
department  may  at  any  time  issue  over  and  above  the 
maximum  amount  issued  on  securities,  an  equal  amount 
of  coin  or  bullion  must  be  paid  into  its  coffers. 

It  will  be  seen  that  under  this  system  the  notes  of  the 
Bank  of  England  were  rendered  really  and  truly  equiva- 
lent to  gold,  while  their  immediate  conversion  into  that 
metal  no  longer  depends,  as  it  previously  did,  on  the  good 
faith,  the  skill,  or  the  prudence  of  the  directors.  These 
important  results  have  been  attained  without  imposing 
any  burden  of  which  anyone  has  any  right  to  complain. 
English  currency  rests  on  the  fundamental  principle  that 
all  debts  above  forty  shillings  must  be  paid  in  gold.  But 
individuals  and  associations,  including  the  banking  or 
commercial  department  of  the  bank,  have  the  option,  if 
they  prefer  it,  to  exchange  gold  for  bank-notes,  and  to 
make  use  of  the  latter  in  their  dealings  with  the  public. 
Hence,  if  A  or  B  goes  to  the  issuers  of  paper,  and  gets  lOO 
or  500  notes  from  them  in  exchange  for  an  equivalent 
amount  of  gold,  it  is  his  own  convenience  he  has  exclu- 
sively in  view.  He  was  at  full  liberty  to  use  gold,  but  he 
preferred  exchanging  it  for  notes  because  he  could  employ 
the  latter  more  advantageously.  This  is  the  way  in  which 
paper  is  issued  under  the  act  of  1844;  and  such  being  the 
case  it  is  contradictory  to  say  that  it  is  productive  either 


IJANK    OV    ENGLAND.  135 

of  hardship  or  inconvenience.     It  certainly  is  a  wise  Act. 
It  is  alleged  that  the    new   system   is   injurious   by 
shackling  the  bank  in  the  use  of  its  credit,  and  the  answer 
given  is,  that  it  does  this  in  order  to  prevent  the  greater 
injury  of  over-issues   of  paper.     The  law  very  properly 
prevents   the    bank   from    issuing   substitutes  for  money 
which  cocs  not  represent  money.     It  docs  not  absorb  or 
lock  up  a  single  six[)cnce  worth  of  capital,  nor  does  it  in- 
terfere in  any  manner  of  way  with  its  employment.      The 
gold  in  the  issue  department  of  the  Bank  of  England  was 
not  purchased  by  the  bank  and  does  not  belong  to  it ! 
The  bank  is  its  keeper,  but  not  its  owner.     It  belongs  to 
the  public,  or  to  the  holders  of  bank  notes,  who  deposited 
it  in  the  bank  in  exchange  for  notes,  with  and  under  the 
express  stipulation,  that  on   paying  the   latter  into  the 
bank  they  should  receive  back  their  gold.     Any  interfer- 
ence with  these  deposits  would  be  an  interference  with 
property  held  in  pledge  for  others,  that  is,  it  would  be  an 
act  precisely  of  the  same  kind  with  that  which  exposes 
private  bailees  to  penal  servitude. 

But  though  the  bank  directors  may  not  lay  violent 
hands  on  the  property  of  the  public,  the  bank,  it  is 
obvious,  has  at  this  moment  the  same  absolute  command 
over  its  entire  capital  and  credit,  that  it  would  have  were 
the  Act  of  1844  non-existent. 

Beginning  on  page  271  will  be  found  the  full  corres- 
pondence between  the  Chancellor  of  the  Exchequer  and 
the  Bank  of  England  relative  to  the  renewal  of  the  bank 
charter  in  1S44. 


CHAPTER  X. 


RADICAL  CHANGES  IN  THE  MANAGEMENT  OF  THE  BANK. 

Privileges  of  Officers  and  Directors — Groundless  Nature 
of  a  Charge  Often  Made — Plausible  Objections  to 
New  Laws — Amount  of  Notes  Issued — Hoiv  to  Deter- 
mine an  Excess  of  Currency— Notes  in  the  Banking 
Department — Great  Changes  Wrought  in  the  Man- 
agement of  the  Bank  —Restricting  Banks  for  the  Issu- 
ing of  Notes — Convertibility  of  Bank  of  England 
Notes — Variations  in  the  Rate  of  Discount — Tempor- 
ary Suspension  of  the  Act  of  18^4.  to  Avert  a  Panic — 
Effect  of  Modification  of  Usury  Laws — Particulars  as 
to  Number  and  Class  of  Depositors — Development  of 
the  Methods  of  Economizing  Money — Transitory  Cred- 
its— Discount  Variations — Credit  and  Capitalists — 
No  Change  Probable  in  the  Methods  of  the  Baiik  oj 
England — Should  Banks  be  ProJiibited  From  Issu- 
ing Notes —  True  Way  to  Remove  Danger — Modifica- 
tion of  Banking  Laws — Bank  of  England  Notes  Made 
Legal  Tender. 


Apart  from  the  practice  of  issuing  transferable  notes, 
the  Bank  of  England  is  free  from  all  restraint,  and  is 
in  precisely   the    same    situation    as    other    banking    or 


IJANK    01'    ENGLAND. 


137 


mercantile  establishments.  Its  directors  may  lend  or  not 
lend  as  they  please,  and  may  lay  down  such  conditions  as 
they  please  in  regard  to  the  interest  and  the  terms  of 
loans  and  discounts.  In  short,  they  may  do  whatever  they 
like  with  their  own  ;  but  farther  they  are  not  permitted 
to  go.  They  may  not  substitute  shadows  for  realities. 
They  cannot,  whether  to  assist  others,  or  to  relieve  them- 
selves from  embarrassment,  issue  a  single  note  except  upon 
a  deposit  of  bullion.  But  this  rule  does  not  operate  on 
the  bank  only.  It  applies  to  all  individuals  and  associa- 
tions. And  to  relax  it  in  any  degree  would  be — disguise 
it  as  one  may — to  authorize  an  issue  of  fictitious  or  spur- 
ious paper,  and  consequently  to  vitiate  the  currency  and 
to  abuse  credit  in  the  way  that  is  sure  to  be  in  the  end 
the  most  disastrous. 

This  statement  shows  the  groundless  nature  of  the 
charge  which  is  often  made  against  the  Act  of  1844, 
(which  is  given  in  preceding  chapter)  that  under  its 
operation  the  bank  runs  the  risk  of  being  brought  to  a 
stop,  though  it  may  have  some  five,  six,  or  even  eight 
millions  bullion  in  its  coffers.  For  it  is  plain  that  two 
things  are  confounded  in  this  charge,  which  are  quite  dis- 
tinct, and  have  no  necessary  connection  with  each  other, 
viz.,  the  proceedings  of  the  bank  in  the  capacity  of  issuer 
of  notes,  and  its  proceedings  in  the  capacity  of  a  banking 
company.  In  the  former  capacity  it  is  all  but  impossible 
that  it  should  be  brought  to  a  stop  ;  and  if  such  a  thing 
should  happen,  there  would  not  then  be  an  ounce  of  bul- 
lion in  its  coffers.  It  is  not,  however,  impossible  nor  even 
very  improbable,  that  the  bank  should  be  brought,  in  its 
mercantile  capacity,  into  difficulties,  while  there  may  be 


138  IIISTORV    OF    THE 

a  large  amount  of  bullion  in  the  issue  department.  But, 
though  such  should  be  the  case,  is  that  any  reason  why 
the  bank  directors  should  be  permitted  to  draw  on  funds 
that  do  not  belong  to  them,  and  over  which  they  have  no 
control  ?  Supposing  the  bank  was  in  difficulties,  is  it  to 
be  allowed  to  right  itself  by  setting  aside  the  principle  of 
metiin  and  tniim,  and  seizing  on  what  belongs  to  others  ? 
The  directors  would  be  the  first  to  repudiate  such  a  doc- 
trine, which  must  be  rejected  by  all  men  who  have  any 
sense  of  honor  or  regard  for  character. 

One  of  the  most  plausible  objections  to  the  Act  of 
1844  is  that  it  "limits  the  currency;"  that  it  makes  no 
provision  for  the  increasing  demands  of  the  public  ;  and 
confines  matters  in  1S88,  when  the  exports  are  in  the 
hundreds  of  millions,  to  the  same  amount  of  money  as  in 
1844,  when  the  exports  did  not  exceed  58^  millions.  The 
simple  truth,  however,  is  that  the  Act  allows  money  to  be 
imported  and  exported,  to  be  retained  or  sent  elsewhere, 
just  as  it  is  wanted,  and  what  it  does  limit  is  the  uncon- 
trolled issue  of  paper  representatives  of  money,  which 
experience  proved  were  too  often  omitted  without  any 
reference  to  the  reserves  of  money  kept  to  maintain  the 
convertibility  of  the  paper  issued.  The  ^^16,200,000  now 
issued  on  securities  is  the  only  thing  that  is  limited  in  the 
Act ;  everything  else  varies  with  the  varying  condition 
and  circumstances  of  the  country,  including  the  means  by 
which  the  use  of  money  may  be  economized. 

The  present  note  issue  of  the  Bank  of  England,  Octo- 
ber, 18SS,  is  ^^36,829,970  ;  notes  in  circulation  ^23,142,180; 
estimated  average  circulation  for  1888,  ^24,381,000.  And 
if  the   country   had    really   required    a   larger   supply   of 


BANK    Of    ENGLAND.  139 

money,  that  is,  if  more  coins,  or  paper  equivalent  to  coins, 
could  have  been  absorbed  into  the  circulation  without  ren- 
dering the  currency  redundant,  and  depressing  the 
exchange,  the  additional  quantity  would  have  been  forth- 
with supplied.  For,  under  such  circumstances,  merchants, 
bankers,  and  money-dealers,  would  have  realized  a  certain 
and  immediate  profit  by  carrying  bullion  to  the  mint  or 
the  bank,  that  they  might  obtain  coins,  or  notes,  or  both, 
with  which  to  increase  the  currency.  It  is  one  of  the 
chief  merits  of  the  Act  of  1844,  that,  under  its  agency,  the 
supply  of  money  is  not  to  any  extent  or  in  any  degree 
regulated  or  influenced  by  the  proceedings  of  the  bank  or 
the  Government.  They  have  nothing  to  do  in  the  matter, 
unless  it  be  to  coin  the  bullion  which  individuals  or  firms 
carry  to  the  mint  for  that  purpose,  and  to  exchange,  when 
called  upon,  notes  for  coins,  and  coins  for  notes.  The 
supply  of  money,  like  that  of  all  non-monopolized  articles, 
is  wholly  dependent  upon,  and  is  determined  by  the  free 
action  of  the  public.  It  would,  indeed,  be  quite  as  true  to 
say,  that  the  Act  of  1844  limits  the  amount  of  corn,  of 
cloth,  or  of  iron  produced  in  the  country,  as  that  it  limits 
the  amount  of  money.  It  maintains  the  value  of  the  notes 
issued  by  the  bank  on  a  level  with  the  coins  for  which  they 
are  substitutes  ;  but  beyond  that  its  effect  is  nil.  It  has 
nothing  whatever  to  do  with  the  greater  or  less  amount 
of  the  coin  and  notes  of  trustworthy  convertibility  put  into 
circulation.  That  depends  entirely  on  the  estimate  formed 
by  the  public  of  its  excess  or  deficiency,  an  estimate 
which  when  wrong  is  sure  to  be  corrected  by  the  ex- 
changes. 

It  may  be  added,  that  no  inference  can  ever  be  safely 


140  HISTORY    OV    THE 

drawn  from  the  number  of  notes  or  coins,  or  both,  afloat 
in  a  country,  as  to  whether  its  currency  be,  or  be  not,  in 
excess.     That  is  to  be  learned  by  the   state   of  the   ex- 
change,   or    by  the  influx  and   efflux  of  bullion.     If  the 
imports  of  bullion  exceed  the  exports,  it  shows  that  the 
currency  is  in  some  degree  deficient  ;   while,  if  the  exports 
exceed   the   imports,  it   shows   that   the   currency   is   in 
excess,  and  that  no  additions  can  be  made  to  it  without 
farther  depressing  the  exchange  and  increasing  the  drain 
of  bullion.     When  the  imports  and  exports  of  bullion  are 
about  equal,  then  of  course  the  currency  is   at  about   its 
proper  level.     These  are  the  only  criteria  by  which  any- 
thing can  ever  be  correctly  inferred  in  regard  to  the  defi- 
ciency or  excess  of  currency.     Its  absolute  amount  affords 
hardly  even  a  basis  for  conjecture.     When  there  is  little 
speculation  or  excitement,  an  issue  of  25  or  27  millions 
bank  notes  may  be  in  excess  ;  while,  at  another  time,  and 
with  a  different  state  of  trade  and  speculation,  an  issue  of 
35  or  37  millions  of  notes  may  not  be  enough.     Except  in 
periods  of  internal  commotion,  or  when  the  country  is  dis- 
turbed by  alarms  of  invasion,  the  state  of  the  exchange  is 
the  only,  as  it  is  the  infallible,  test  of  the  sufficiency  and 
insufficiency  of  the  currency.     We  may  further  state,  that 
those  who  are  in  the  habit  of  complaining  of  the  limita- 
tion of  the  currency  by  the  Act  of  1844,  almost  uniformly 
underrate  its  amount.    We  have  already  seen  that  the  notes 
issued   by  the  issue  department  of  the  bank  in  October, 
18S8,  amounted  to  ^36,829,970,  and  of  these  ;^  13,687,795 
were  in  the  banking  department  of  the  bank,   leaving  a 
balance  of  ^23,142,180  in  the  hands  of  the  general  public  ; 
and  this  latter  sum  is,  wc  are  told,  the  real  amount  of  the 


BANK    OF    EN'Ca.ANI).  141 

issues.  But  tliis  is  falling  into  the  rather  serious  blunderof 
mistaking-  a  part  for  the  whole.  The  notes  in  the  banking 
department  of  the  bank  make  not  only  a  part,  but  a  most 
important  and  active  part,  of  the  currency  of  the  country. 
They  constitute  the  means,  along  with  the  bullion  in  the 
same  department,  with  which  the  bank  carries  on  her 
banking  business,  and  are  as  evidently  a  portion  of  the 
currency  as  the  notes  in  the  tills  of  private  bankers  and 
the  pockets  of  individuals.  The  notes  in  the  banking 
department  of  the  bank  must  therefore  never  be  omitted 
in  estimating  the  amount  of  notes  in  circulation.  The 
latter,  and  the  notes  out  of  the  issue  department,  are 
identical  ;  and,  in  a  general  point  of  view,  it  matters  not  a 
straw  whether  they  are  in  the  hands  of  the  banking 
department  of  the  bank  or  of  individuals. 

So  far  the  legislation  of  1S44  in  its  direct  bearing  on 
the  Bank  of  England  has  been  specifically  treated.  It  ^\■ill 
be  found  the  most  interesting  and  instructive  move  in  the 
life  of  the  world's  greatest  financial  institution.  Sir  Rob- 
ert Peel  was  unable  to  complete  the  full  routine  of  his 
policy,  but  his  action  wrought  wonderful  changes. 

He  held  that  experience  had  shown  that  the  balance  of 
advantages  lay  on  the  side  of  suppression  of  all  note  issues 
except  that  of  the  Bank  of  England,  as  reformed  by  him, 
or  of  some  similar  supplementary  establishments  regulat- 
ed in  the  same  manner.  But  it  was  obviously  impossible 
to  prohibit,  without  compensation,  the  future  exercise  by 
country  bankers  of  the  rights  they  had  legitimately  ac- 
quired; and  as  it  was  not  easy  to  buy  up  the  existing 
privileges  of  the  private  and  joint-stock  banks,  Sir  Robert 
Peel  allowed  them  to  remain  under  conditions  prohibiting 


142  HISTORY    OF    THE 

their  extension,  and  he  apparently  hoped  that  country 
issues  would  gradually  disappear  before  the  rivalry  of 
Bank  of  England  notes.  The  Act  of  1844,  accordingly, 
enacted  that  no  new  bank  for  the  issue  of  notes  should  be 
established  in  any  part  of  the  United  Kingdom;  and  that 
the  maximum  issue  of  notes  by  the  existing  country  banks 
of  England  should  in  future  be  limited  to  the  average 
amount  which  they  had  respectively  in  circulation  during 
the  twelve  weeks  preceding  the  27th  of  April,  1844.  It 
was  also  ordered  that  the  names  of  the  partners  in  joint- 
stock  and  other  banks  should  be  periodically  published. 
A  provision  was  also  enacted  under  which  an  issuing  bank 
could  resign  its  privilege  by  composition  with  the  Bank  of 
England.  The  existing  law  was  maintained  preventing 
the  issue  of  any  notes  other  than  the  Bank  of  England  in 
London,  and  the  establishment,  within  sixty-five  miles  of 
London,  of  any  branch  of  an  English  joint-stock  bank 
having  the  privilege  of  issue. 

The  convertibility  of  the  Bank  of  England  notes  has 
been  perfectly  maintained  since  1844;  and  the  manage- 
ment of  English  banks,  whether  private  or  joint-stock, 
has  been  sound  and  judicious,  the  cases  of  failure  among 
them  being  few  and  contrasting  strongly  with  the  recur- 
rent epidemics  of  insolvency  of  earlier  experience.  It 
must,  however,  be  admitted  that  the  variations  in  the  rate 
of  discount  charged  by  the  bank  have  been  much  more 
numerous  and  violent  since  1844  than  they  were  before, 
and  on  three  occasions — in  1847,  1857,  1866 — it  has  been 
judged  necessary  to  authorize  a  suspension  of  the  Act  so 
far  as  to  allow  the  bank  directors  the  power  to  strengthen 
the  banking  department  by  recourse  to  the  reserves  of 


HANK    OF    ENGLAND.  143 

the  issue  department.  In  each  case  the  suspension  of  the 
Act  arrested  and  allayed  the  panic  prevailing  up  to  the 
moment  of  suspension,  and  in  1866  it  was  not,  in  fact, 
found  necessary  to  exercise  the  power  to  borrow  from  the 
issue  department  which  had  been  conceded  to  the  direc- 
tors. 

It  is  necessary  to  enquire  whether  the  y\ct  of  184-I.  is 
to  be  blamed  for  the  increase  in  the  number  of  clianges  of 
the  rate  of  discount  which  has  since  been  experienced,' 
and  whether  this  increase  and  the  suspension  of  the  Act 
in  time  of  trial  constitute  a  reason  for  its  abrogation  or 
for  a  modification  of  its  provisions.  In  the  first  place,  the 
increased  number  of  changes  in  the  rate  of  discount  is 
more  apparent  than  real.  The  management  of  the  Bank 
of  England  has  become  responsive  to  the  movement  in  the 
value  of  money  in  the  open  market  in  a  degree  unknown 
before  this  generation.  The  rate  of  discount  outside  the 
bank  changed  rapidly  and  often  before  1844,  but  its  fluc- 
tuations were  to  a  large  extent  prevented  from  affecting 
the  Bank  of  England.  Previously  to  the  modification  of 
the  Usury  Laws  in  1839,  the  bank  could  not  charge  more 
for  loans  than  five  per  cent.,  and  for  some  considerable 
period  after  the  restriction  had  been  removed  the  direc- 
tors, influenced,  in  part  at  least,  by  their  accustomed 
habit  on  several  occasions,  permitted  the  bank  to  be 
involved  in  difficulties  which  might  have  been  averted  by 
the  sooner  raising  the  rate  of  discount. 

Strict  limitation  in  the  number  and  class  of  customers 
with  whom  the  bank  would  do  business,  and  a  refusal  to 
rediscount  bills  that  had  been  already  discounted  by 
money  dealers,  made   it  possible  to  keep  the  bank   rate 


144  HISTORY    OF    THE 

below  the  rates  of  the  open  market  without  exposing  the 
resources  of  the  establishment  to  an  exhausting  demand. 
Next,  it  is  to  be  observed  that  the  methods  of  econo- 
mizing the  use  of  money  by  the  development  of  banking 
have  been  extraordinarily  multiplied  during  the  past  few 
years.  The  Bank  Act,  as  has  been  shown,  in  no  way 
operates  to  diminish  the  supply  of  money  in  the  country; 
on  the  contrary,  it  tends  to  increase  it,  since  it  forbids  any 
extension  of  the  use  of  notes  issued  on  credit  as  a  substi- 
tute for  money.  The  effect  of  the  Act  has  therefore  been 
to  neutralize  rather  than  to  stimulate  the  process  of 
economy  in  the  use  of  money  to  which  we  have  called 
attention.  But  the  transactions  of  bankers — the  issue  of 
checks,  the  negotiation  of  bills,  etc.,  etc.,  have  multiplied 
out  of  all  proportion  to  the  stock  of  ready  money*  on  which 
they  risk,  and  the  mass  of  transitory  credits  being  con- 
stantly increasing  while  the  reserves  of  cash  suffer  little 
change,  there  naturally  and  necessarily  follows  an  increas- 
ed sensibility  in  the  equilibrium  of  the  money  market, 
with  constant  oscillations  in  the  rate  of  interest.  But 
although  the  increase  in  the  number  of  changes  of  discount 
since  1 844  has  not  been  as  great  as  may  at  first  seem  appar- 
ent, and  so  far  as  the  increase  has  been  real  it  must  be 
chiefly  attributed  to  the  growing  disproportion  between 
the  magnitude  of  transitory  credits  at  any  time  existing 
and  the  reserve  of  cash  kept  on  hand,  yet  it  may  be  freely 
admitted  that  it  is  not  impossible  that  changes  have  from 
time  to  time  happened  that  might  not  have  occurred 
supposing  the  separation  of  the  banking  and  issue  depart- 
ments had  not  been  established.  It  is  evident  that  if  the 
cash  in  the  two  departments  had  been  equally  accessible 


^  -r  >,  ^ 

■».    ^^ 

BANK    OF    ENGLAND.  V,  ^/'^  V 

to  the  bank  directors,  a  withdrawal  of  moncy\;n<di  is  now      "  '55?^  ^-^ 
thrown    upon   one   department   would  not  have  (>^!^1  so      .'    '/^ 
great  a  change  in  the  proportion  between  liabiHtic!5*>ijW/>q         ^  ^ 
reserve. 

The  oscillations  experienced  in  the  rate  of  discount 
in  the  I'ank  of  England,  oscillations  which  after  all  indi- 
cate nothing  more  than  the  natural  movement  in  the  value 
of  a  medium  which  is  the  first  to  be  agitated  by  changes 
in  value  of  every  other  commodity,  arc  cheaply  purchased 
as  the  price  of  the  permanent  and  perfect  equality  of  the 
bank  note  and  the  money  it  represents.  The  repeated 
suspensions  of  the  Act  of  1841.  in  time  of  tr'iA  do,  pr///ia 
facie,  present  a  much  stronger  argument  for  the  repeal  of 
the  statute.  Legislation  which  breaks  down  upon  critical 
occasions  discredits  the  legislature  that  decreed  it  ;  and 
it  is  not  to  be  denied  that  the  mere  suspension  of  the  Act 
has  more  than  once  ojjeratcd  as  a  charm  to  allay  feelings 
of  panic  among  bankers,  money  dealers,  and  merchants. 
It  must  also  be  admitted  that  Sir  Robert  Peel,  in  common 
with  the  earlier  advocates  of  the  policy  of  the  Act,  believ- 
ed that  it  would  prevent  the  recurrence  of  commercial 
crises.  It  is  strange  that  such  an  anticipation  should  have 
been  entertained. 

Whoever  will  reflect  on  the  nature  of  the  organization 
of  credit  in  the  commercial  world,  and  on  the  timid  and 
self  protecting  instincts  of  men,  especially  of  capitalists, 
will  be  forced  to  confess  that  the  recurrence  of  crises  must 
be  accepted  as  inevitable.  The  more  highly  developed  is 
the  economy  of  money  the  greater  must  be  the  sum  which 
banks  and  bankers  are  liable  to  be  called  upon  to  repay 
on  demand  or  at  short  notice  in  proportion  to  the  reserves 


140  HISTORY    or    THE 

of  money  kept  in  their  coffers;  and  the  greater  also  must 
be  the  ahiount  of  bills  falling  due  daily,  and  largely  met 
as  they  fall  due  by  the  proceeds  of  bills  drawn  daily  and 
discounted  as  drawn.  The  smoothness  of  action  of  the 
commercial  machine  evidently  depends  upon  the  continu- 
ance of  that  confidence  which  is  ordinarily  felt  by  the 
creditor  class  in  the  solvency  of  debtors,  and  any  access  of 
distrust  may  easily  produce  consequences  culminating  in  a 
crisis.  Bankers  who  Are  at  once  debtors  and  creditors  are 
necessarily  constrained  to  protect  themselves  in  such 
periods  of  defective  confidence  by  declining  to  meet  the 
applications  for  loans  and  discounts  which  are  forced  upon 
them;  and  a  sharp  competition  ensues  for  the  possession 
of  the  ready  money  that  is  available  in  the  market.  The 
pressure  is  concentrated  upon  the  Bank  of  England,  and 
the  publicity  of  the  condition  of  that  institution,  consequent 
upon  the  weekly  issue  of  its  balance  sheet,  lets  all  men 
know  the  rate  of  decline  of  its  cash  reserve.  At  such  a 
time  an  accident  may  cause  the  spirit  of  caution  to  pass 
into  apprehension  and  panic.  The  fear  that  the  cash 
balances  of  the  banking  department  may  be  exhausted 
incites  bankers  to  hasten  to  anticipate  one  another  in  with- 
drawing any  reserve  they  may  have  kept  at  the  bank,  and 
the  rate  of  diminution  of  the  cash  of  the  department  is 
accelerated.  It  is  obvious  that  the  condition  we  have 
described  is  in  its  origin  independent  of  any  particular 
regulations  adopted  with  respect  to  the  note  circulation  of 
a  community;  and  it  has,  in  fact,  been  experienced  in 
Great  Britain  under  all  varieties  of  laws,  and  in  the  United 
States,  in  Northern  and  Southern  Germany,  and  in  the 
British  colonies  under  an  equally  wide  dissimilarity  of  cur- 


BANK    OF    f.NGLAND.  147 

rency-rcgulations.       English    history   shows  that  such   a 
condition  may  be  aggravated,  if  not  precipitated,  by  an 
antecedent    issue    of    notes    increasing    the    proportion 
between  the  volume  of   transitory  credits  and    the  cash 
available  to   meet   instantaneous  demands  ;   and   as   long 
as    the   issue    of   notes    was    unrestricted,    bankers    could 
never  resist  the  temptation  to  make  up,  by  an  increase  in 
their  issues,  any  diminution  in  their  available  cash,  a  cause 
directly  provocative  of  a  further  diminution  by  its  effect  on 
adverse    exchanges,    and    therefore    producing  a   sharper 
reaction  when  the  necessity  was  at  last  recognized  of  re- 
covering the  balance  between  their  cash  in  hand  and  their 
liabilities.     No  legislation  can  prevent  panic,  but  it  pre- 
vents bankers  from  resorting  to  causes  which  aggravate 
panics,  and  it  moreover  supplies  a  means  of  allaying  the 
unreasoning  terror  in  which  panics  culminate.     Were  it 
not  for  the  separation  of  the  issue  and  banking  depart- 
ments we  should  be  constrained  to  witness  and  tolerate 
periodical  suspension  of  cash  payments,  as  this  would  be 
the  only  means  left  of  appeasing  alarm  ;   and  this  desperate 
expedient   has   been,    in    fact,  employed    over   and  over 
again,  under  such  circumstances,  both    in   England    and 
elsewhere. 

When  the  minds  of  creditors  are  unhinged,  and  all 
are  competing  for  money  which  is  not  in  existence  in 
sufficient  quantities  to  satisfy  their  demands,  the  announce- 
ment that  the  Government  has  authorized  the  bank 
directors  to  suspend  the  action  of  the  Act  and  to  fall  back 
on  the  resources  of  the  issue  department  operates  as  a 
charm.  The  mere  announcement  is  often  enough  to  put 
an  end  to  the  panic  preViously  prevailing,  the  feverish  fit 


14S  HISTOKV    OF    THE 

passes  away,  and  the  customary  temper  of  confidence  is 
more  or  less  slowly  restored. 

It  is  said  that  the  existence  of  the  Act  of  1844  is 
justified  even  when  it  is  suspended,  for  it  provides,  in  the 
maintenance  of  the  cash  reserves  of  the  issue  department, 
a  stock  of  money,  the  unlocking  of  which  furnishes  the 
means  of  arresting  panic  which  would  otherwise  have  to 
be  sought  in  a  periodic  suspension  of  cash  payments.  It 
lias  naturally  been  asked  whether  the  law  might  not  be 
saved  the  apparent  discredit  involved  in  its  being  set  aside 
by  an  act  of  the  Executive  Government,  acting  on  the 
faith  of  a  subsequent  indemnity  from  Parliament,  by  the 
embodiment  in  it  of  a  power  authorizing  its  suspension 
under  circumstances  that  provoke  its  suspension. 

We  have  already  said  that  Sir  Robert  Peel  contem- 
plated an  ultimate  extinction  of  all  note  issues  save  that 
of  the  Bank  of  England ;  and  he  probably  expected  that 
the  substitution  of  Bank  of  England  notes  for  all  others 
would  not  be  long  delayed.  The  progress  actually 
acliicvcd  towards  this  end  has  been  very  slow.  It  may 
be  added  that  the  provisions  of  the  Act  of  1844,  relied 
upon  Sir  Robert  Peel  for  bringing  about  by  arrangement 
a  substitution  of  Bank  of  England  notes  for  those  of  privil- 
eged bankers,  have  been  for  many  years  entirely 
neglected.  With  these  facts  before  us  it  is  not  surprising 
that,  in  1866,  Mr.  Gladstone,  as  Chancellor  of  the  Excheq- 
uer under  Lord  Palmerston,  should  have  submitted  to  the 
House  of  Commons  a  bill  dealing  with  the  subject.  By  it, 
it  was  proposed  that  private  banks  of  issue  in  England 
and  Wales  should  be  released  from  the  existing  restriction 
that  the  numbers  of  partners  must  not  exceed   six,  and 


BANK    OF    EXGLAND.  14'J 

that  joint-stock  banks  should  be  allowed  to  come  within 
the  circle  of  sixty-five   miles   from    London    upon   their 
undertaking  to  pay  annually  to  the  Exchequer  a  duty  at 
the  rate  of  one  per  cent.,  and  on  their  average  issues,  and 
that  thereupon  their  privileges  of  issue  should  be  assured 
to  them  until  1890,  at  which  time  they  should  cease.     The 
bill  was  purely   permissive  ;  but   it  was  thought    by   its 
author  that  a  large  proportion  of  the  English  banks  of 
issue   would  place  themselves   under   its    operation,   and 
further  legislation  would  be  practicable    with  respect  to 
the  rest.     The  bill,  however,  was  less  and  less  approved  as 
it  became  better  known,  and  it  was  ultimately  withdrawn. 
There   is   no   probability   of    any    legislation    being 
enacted,  supposing  legislation  to  be  desirable,  looking  to 
a  radical  change  in  the  methods  of  the  Bank  of  England 
or  the  strong  private  and  joint-stock  banks  of  the  King- 
dom.    The  reasons  for  this  are  many,  the  chief,  however, 
being  the  fact  that  the  bankers  of  the  Kingdon  are  largely 
represented  on  both  sides  of  the  House  of  Commons,  and 
they   are   on    the   whole    quite   well   contented  with  the 
present  state  of  the  law,  while  the  great  body  of  the  public 
are    profoundly    ignorant,    and    uninterested    in    it.       In 
America,    banks    are    plenty    and    banking    business    so 
general  that  nearly  every  intelligent  citizen  takes  a  direct 
and   positive   interest    in    banks   and    banking,  and   as  a 
natural  outcome  of  this  public  censorship  beneficial  and 
equitable  legislation  is  easily  enacted  \\lienever  necessary. 
In  England,  the  inaction  to  overcome  is  so  great,  and 
the  force  available  is  so  limited,  nothing  will  be  done  except 
under  the  influence  of  a  commercial  crisis,  when  almost 
anything  can  be  done.     The  aim  of  economists  and  stater.- 


150  HISTOKV    ()!•     I  HE 

men  should  be  to  produce  a  body  of  authority  that  may 
command  respect  even  in  the  midst  of  universal  agitation. 

At  the  risk  of  stating  something  that  may  appear  too 
obviously  true  to  require  statement,  we  would  submit  that 
the  question,  whether  bankers  should  be  permitted  to 
issue  notes,  must  be  determined  upon  a  balance  of  oppos- 
ing considerations  of  expediency.  Many  of  the  advocates 
and  supporters  of  Sir  Robert  Peel's  legislation  of  1S44, 
have  said,  apparently  with  a  conviction  that  they  were 
expressing  an  axiomatic  truth,  that  the  issue  of  notes  was 
no  part  of  the  business  of  a  banker.  The  force  of  assertions 
of  this  kind  cannot  be  admitted  by  everybody.  There  is 
certainly  no  law  of  nature  limiting  the  action  of  a  banker 
within  the  bounds  sought  to  be  prescribed ;  and  if  we 
accept  as  the  definition  of  a  banker  a  person  whose  busi- 
ness it  is  to  borrow  and  lend  money,  we  cannot  but 
recognize  in  the  issue  of  transferable  notes  a  most  con- 
venient process  of  carrying  on  this  business. 

A  banker  who  issues  notes  borrows  so  much  from  the 
persons  from  time  to  time  holding  them,  and  this  money 
he  has  lent  to  the  customers  indebted  to  him.  The 
reasons  of  convenience  which  justify  a  prohibition  of  the 
liberty  of  issue  are, 

First. — That  experience  has  shown  that  this  process 
of  borrowing  is  too  patent  and  too  easily  abused  to  the 
precipitation  and  aggravation  of  commercial  crises. 

Second.— That  the  great  and  almost  insuperable  dif- 
ficulty of  refusing  to  receive  notes  which  have  obtained 
general  currency  makes  it  most  desirable  that  such  notes 
should  possess  some  better  guarantee  than  can  be  always 
forthcoming  of  the  solvency  of  private  issuers. 


FiANK    or    KN'GLANI).  151 

These  are  the  rea'sons  which  prevail  to  uphold  Sir 
Robert  Peel's  legislation,  and  which  impel  one  to  consider 
what  means  may  be  discovered  of  perfecting  his  policy  by 
the  unification  of  issuers  throughout  the  Kingdom. 

The  time  when  one  note  currency,  and  the  accelera- 
tion of  the  time  when  one  currency  only  shall  be  in 
circulation,  would  both  be  greatly  facilitated  by  a  mechan- 
ical and  local  separation  of  the  issue  department  from  the 
Bank  of  England.  Much  confusion  of  thought  still  pre- 
vails by  reason  of  the  fact  that  the  Bank  of  England  is 
used  as  the  agent  for  managing  what  is  now  a  state  issue, 
resting,  so  far  as  it  is  uncovered  by  specie,  upon  state 
security. 

If  the  business  of  issuing  notes  were  removed  bodily 
from  the  Bank  of  England  and  located  in  a  Government 
office,  and  the  name  of  the  notes  at  the  same  time  chang- 
ed, it  could  not  fail  to  be  seen  that  the  business  left  behind 
in  Threadnecdle  street  differed  in  no  essential  particular 
from  that  of  any  other  banker  in  Lombard  street,  and 
much  of  the  superstitious  regard  for  the  Bank  of  England, 
and  trust  in  its  assistance  in  time  of  trouble,  would  be 
rapidly  destroyed.  It  would  then  be  understood  that  the 
cry  for  ministerial  interference  at  the  time  of  crises,  and  of 
incipient  crises,  was  nothing  more  than  a  claim  for  the 
nation  to  cover  with  its  credit  those  who  had  not  been 
prudent  enough  to  maintain  adequate  reserves  for  their 
own  defence  ;  and,  as  this  would  be  understood  before- 
hand, it  would  induce  the  consequence  of  greater 
circumspection  on  the  part  of  dealers  in  money  and  a  less 
temptation  to  rely  on  extraneous  aid.  The  purely 
mechanical    act    of  removing    the    issue   of    notes    from 


152  lUSlOKV    UK    iUL: 

Thrcadnccdlc  street  would  make  the  facts  of  the  situation 
plain,  and  woukl  bring  about  an  alteration  of  conduct 
amonjj^  London  bankers,  so  that  it  should  conform  to  the 
facts  thus  perceived. 

The  cash  reserves  kept  by  the  London  bankers  arc 
disproportionately  small  compared  with  the  amount  of 
their  instantaneous  liabilities.  Competition  has,  of  course, 
been  a  considerable  element  in  causing  this  attenuation 
of  cash  reserves.  Each  joint-stock  bank  has  struggled 
after  that  increase  of  credit  which  follows  an  increase  of 
dividends  ;  and  the  unproductive  cash  balances  on  hand 
have  been  kept  down  to  the  lowest  lim.it.  They  would, 
however,  never  have  been  reduced  to  such  narrow  dimen- 
sions but  for  the  reliance  placed  on  the  assistance  of  the 
Bank  of  England  in  the  last  extremity  ;  and  if  it  were 
made  plain  that  the  I^ank  of  England  is  itself  nothing  more 
than  a  big  joint-stock  bank,  this  reliance  would  disappear. 
Many  schemes,  equally  ingenious  and  chimerical,  have 
been  recently  put  forth  for  compelling  bankers  to  keep 
larger  reserves  of  cash  in  proportion  to  their  deposits. 
The  true  way  to  remove  the  danger  that  is  always  threat- 
ening, under  the  system  that  exists,  is  to  produce  a  convic- 
tion among  bankers  that  they  must  not  expect  help  else- 
where if  they  become  distressed  through  a  default  in  their 
own  reserves  of  cash. 

If  the  separation  of  the  issue  department  from  the 
rest  of  the  Bank  of  England  was  completed  by  its  transfer 
to  a  Government  office  under  the  management  of  state 
agents,  the  unification  of  the  issues  of  the  Kingdom  might 
be  accomplished  by  legislation  akin  to  that  adopted  by  the 
United  States   in   relation   to   the   national  banks.     Each 


IJANK    OF    KNGLAXI).  ]:>.', 

bank  of  issue  might  be  required  to  withdraw  its  own  notes 
and  to  receive  and  put  out  in  exchange  for  them  notes 
emanatincf  from  the  state  estabhshment,  but  bearinj^  a 
statement  on  their  face  of  tlie  banks  through  which  they 
were  issued.  Government  securities  should  be  deposited 
by  the  issuing  banks  for  the  amounts  thus  put  into  circu- 
lation, which  must  not  exceed  the  amount  of  their  exist- 
ing authorized  issues  ;  and  the  interest  on  these  securities 
would  be  paid  to  the  banks,  less  a  fixed  charge  to  defray 
the  cost  of  preparing  and  issuing  the  notes  delivered  to 
them.  The  notes  thus  issued  would  be  payable  at  the 
central  state  office,  and  would  circulate  throughout  the 
kingdom  ;  but  as  often  as  they  were  brought  back  to  the 
central  office  they  would  be  cleared  again  by  the  several 
issuing  banks  for  reissue,  unless  the  latter  desired  to  be 
retired  from  the  arrangement,  in  which  case  the  issuing 
bank  would  redeem  the  notes  it  issued,  which  would  be 
cancelled,  and  the  securities  deposited,  or  a  corresponding 
part  of  them,  would  be  handed  back.  It  would  not  be 
improper  to  force  this  plan  on  the  acceptance  of  the  priv- 
ileged banks  of  issue,  although  it  is  believed  it  would  be 
freely  accepted,  inasmuch  as  their  notes  would  at  once 
acquire  currency  throughout  the  kingdom  without  dis- 
crimination of  locaHty  in  exchange  for  the  deposit  of 
security,  and  the  gain  they  now  realize  from  the  issue  of 
notes  would  be  left  undiminished. 

Up  to  the  year  1858,  banking  companies  could  not  be 
constituted  with  limited  liability  of  partners  except  by 
way  of  privilege  under  special  Acts  of  Parliament  ;  and 
althougli  the  Bank  of  England,  and  the  three  oldest  estab- 
lished banks  in  Scotland,  were  thus  favored  without  any 


1.04  HISTORY    OF    THE    I'.ANK    OF    ENGLAND. 

consequent  deterioration  in  the  character  of  their  manage- 
ment, abundant  arguments  were  adduced  in  depreciation 
of  a  general  law  on  the  subject.  In  1S58,  however,  an  Act 
was  passed  authorizing  the  formation  and  registration  of 
banking  companies  with  limited  liability,  and  also  enabling 
existing  unlimited  companies  to  register  as  associations 
with  a  limited  liability  of  partners,  subject  to  a  proviso 
that  if  the  bank  was  a  bank  of  issue,  the  liability  of  its 
partners  should  remain  unlimited  in  respect  of  such  issue. 
Several  banks  have  been  established  and  registered  under 
this  law,  and  no  evil  results  have  been  observed  to  follow. 
When  the  charter  was  renewed  in  1833,  the  notes  of 
the  Bank  of  England  were  made  legal  tender  everywhere 
in  England,  except  at  the  bank.  Of  the  wisdom  of  this 
regulation  no  doubt  can  be  entertained.  Bank  notes  are 
necessarily  always  equivalent  to  bullion  ;  and,  by  making 
them  substitutes  for  coin  at  country  banks,  the  demand 
for  the  latter  during  periods  of  alarm  or  runs  is  materially 
diminished,  and  the  stability  of  the  banlc  and  of  the  pecu- 
niary system  of  the  country  proportionately  increased. 


CHAPTER   XL 


FRAUDS,  FORGERIES,  THEFTS  AND   DEFALCATIONS, 

The  First  Forged  Note  on  ihe  Bank  of  England  and  Exe- 
cution of  ihe  Forger — IIow  Discovered — Counter/cit- 
ing— Decision  of  the  Lord  Chief  Justice — Defeating 
Counterfeiters— Great  Theft  of  the  Head  Cashier  of 
the  Bank  of  England— A  Loss  of  £j 20,000 — Invent- 
ing a  Safety  Paper — Men  Executed  by  Scores  for 
Counterfeiting — Ligenious  Schemes  for  Swindling — 
Sir  Robert  Peel  Victimized — Another  Thieving  Offi- 
cial— Fauntlcroy  Secures  £j6ofioo  by  Forgery — A 
Rascally  Clerk  Escapes  to  the  United  States  and  is 
Apprehended — Losses  by  Forgery — A  Chief  Clerk 
Szvindlcs  the  Bank  to  the  Amount  of  £Soo,ooo — His 
Novel  Method  that  went  Undetected  for  Five  Years — 
BidwelTs  Million  Pound  Szvindle. 


Like  all  great  monetary  institutions,  the  Bank  of  Eng- 
land has  been  the  victim  of  innumerable  forgeries,  thefts 
and  defalcations  by  trusted  servants  and  wily  rogues. 

The  day  on  which  a  forged  note  was  first  presented 
at  the  Bank  of  England  forms  a  memorable  era  in  its  his- 
tory. For  sixty-four  years  the  establishment  had  circu- 
lated its  paper  with  freedom  ;   and  during  this  period  no 


156  HISTORY    OP   THE 

attempt  had  been  made  to  imitate  it.  He  who  takes  the 
initiative  in  a  new  line  of  wrongdoing  has  more  than  the 
simple  act  to  answer  for,  and  to  Richard  William 
Vaughan,  a  linen  draper,  belongs  the  melancholy  celebrity 
of  having  led  the  van  in  this  new  phrase  of  crime,  in  the 
year  1758.  The  records  of  his  life  do  not  show  want,  beg- 
"•ar>',  or  starvation  urging  him  to  crime,  but  a  foolish 
desire  to  seem  greater  than  he  was.  By  one  of  the  engrav- 
ers employed,  and  there  were  several  employed  on  dififer- 
c-nt  parts  of  the  notes,  the  fraud  was  discovered.  The  ras- 
cal had  filled  up  to  the  number  of  twenty,  and  deposited 
them  in  the  hands  of  a  young  lady  to  whom  he  was 
attached,  as  a  proof  of  his  wealth.  There  is  no  calculat- 
ing how  much  longer  Bank  of  England  notes  might  have 
been  free  from  imitation,  had  this  man  not  shown  with 
what  ease  they  might  be  counterfeited.  From  this  period 
forged  notes  became  common.  The  faculty  of  imitation 
is  so  great,  that  when  the  expectation  of  profit  is  added, 
there  is  little  hope  of  restraining  the  destitute  or  a  bad 
man  from  a  career  which  adds  the  charm  of  novelty  to  the 
chance  of  gain.  The  publicity  given  to  the  fraud,  the 
notoriety  of  the  proceedings,  and  the  execution  of  the  for- 
mer, tended  to  excite  that  morbid  sympathy  which,  up  to 
the  present  day,  is  evinced  for  any  extraordinary  criminal. 
It  is,  therefore,  possible  that  if  Vaugha.n  had  not  been 
induced  by  circumstances  to  startle  London  with  his  novel 
crime,  the  idea  of  forging  bank  notes  might  have  been 
long  delayed,  and  that  some  of  the  strange  facts  to  be 
related  would  never  have  occurred. 

The  same  }'ear  (1758)  was  also  memorable  for  a  judg- 
ment passed  b}  the  Lord  Chief  Justice,  in  connection  with 


BANK    OF   ENGLAND.  157 

some  notes  which  were  stolen  from  the  mails.  The  rob- 
ber, after  stopping  the  coach,  and  taking  out  all  the 
money  contained  in  the  letters,  went  boldly  to  a  neigh- 
boring post-office  and  had  one  of  the  notes  exchanged. 
The  remainder  of  the  stolen  notes  were  passed  on  trades- 
men. They  were,  however,  stopped  at  the  bank,  and  an 
action  was  brought  by  the  possessors  to  recover  the 
money.  The  question  attracted  widespread  attention, 
and  it  was  decided  by  the  law  authorities: — "That  any 
person  paying  a  valuable  consideration  for  a  bank  note, 
payable  to  bearer,  in  a  fair  course  of  business,  has  an 
undoubted  right  to  recover  the  money  from  the  bank." 

The  notes  of  a  banking  establishment  are  always  lia- 
ble to  imitation  ;  and  as  the  paper  of  a  national  bank  cir- 
culates as  freely  as  coin,  it  is  not  surprising  that  men  of 
desperate  hopes  have  successfully  attempcd  to  ain  by 
fraud  that  which  they  were  denied  by  fortune. 

John  Mathison  was  a  man  of  great  mechanical  capac- 
ity, who,  becoming  acquainted  with  an  engraver,  unhap- 
pily acquired  that  art  which  ultimately  proved  his  ruin 
and  cost  him  his  life.  A  yet  more  dangerous  qualification 
of  his. was  imitating  signatures  wath  remarkable  accuracy. 
In  London  he  forged  a  large  number  of  Bank  of  England 
notes,  the  paper,  engraving,  water-mark  and  general 
appearance  being  superior  almost  to  the  genuine.  Hav- 
ing been  in  the  habit  of  procuring  notes  from  the  bank, 
that  he  might  the  more  accurately  copy  them,  he  chanced 
to  be  there  when  a  customer  paid  in  a  number  of  guineas, 
one  of  w^hich  was  scrupled.  Mathison,  from  a  distance, 
said  it  was  a  good  one.  "  Then,"  said  the  bank  clerk,  on 
the  trial,  "  I  recollected  him," 


]-)«  HISTORY    OF   THE 

The  frequent  visits  of  Mathison,  who  was  very  incau- 
tious, together  with  other  circumstances,  created  some 
suspicion  that  he  might  be  connected  with  these  notes.  On 
another  occasion,  when  Mathison  was  there,  a  forged  note 
of  his  own  was  presented,  and  the  teller,  half  in  jest  and  half 
in  earnest,  charged  Maxwell,  the  name  by  which  Mathison 
was  known,  with  some  knowledge  of  the  forgeries. 
I'urther  suspicion  was  excited,  and  directions  were  given 
to  detain  him  at  some  future  period.  The  day  following 
he  was  decoyed  into  the  presence  of  the  directors.  To  all 
inquiries  he  replied  that  he  declined  to  answer;  that  he 
was  a  citizen  of  the  world,  and  knew  not  how  he  had  come 
into  it,  or  how  he  should  go  out  of  it.  He  watched  his 
chance,  raised  a  window  and  dashed  into  the  street.  He 
was  recaptured.  His  actions  condemned  him.  Further 
questioning  weakened  him.  He  burst  into  tears,  and  yell- 
ing "I  am  a  dead  man,"  said  he  would  confess  all.  At  his 
trial  he  was  found  guilty  on  his  own  acknowledgement, 
when  he  stated  he  could  make  a  whole  note  in  one  day. 
It  was  asserted  at  the  time,  that,  had  it  not  been  for  his 
confession,  he  could  not  have  been  convicted.  He  offered 
to  explain  the  secret  of  his  discovery  of  the  water-mark, 
provided  the  bank  officials  would  intercede  with  the  Gov- 
ernment to  spare  his  life.  His  proposal  was  rejected,  and 
he  paid  the  penalty  with  his  life. 

Forgeries  still  continued.  Considering  the  advances 
made  in  the  mechanical  arts,  they  were  rough  and  even 
rude  in  their  execution.  Easily  imitated,  they  were  also 
easily  circulated.  From  1797  the  executions  for  forgery 
of  £1  notes  augmented  to  an  extent  which  bore  no  pro- 
portion to  any  other  class  of  crime.     During  the  six  years 


BANK    Ol"    ENGLAND.  159 

prior  to  tlicir  issue  there  was  but  one  capital  conviction  ; 
during  the  four  following  years  eighty-five  lives  were 
taken  for  counterfeiting.  This  enormous  increase  pro- 
duced inquiry,  which  resulted  in  an  Act  "For  the  better 
prevention  of  the  forgery  of  the  notes  and  bills  of  exchange 
of  persons  carrying  on  the  business  of  bankers."  By  this 
some  stringent  penalties  were  denounced  against  offenders; 
and  a  notice  to  the  following  effect  was  published  in  the 
London  papers  in  September,  1801  : — "All  the  one  and  two 
pound  notes  issued  by  the  Bank  of  England  after  this 
date,  will,  to  prevent  forgeries,  be  printed  on  a  peculiar 
and  purposely  constructed  paper." 

This  endeavor  to  repress  crime  fell  sadly  short  of  the 
necessity,  owing  to  the  great  truth  that  punishment  is  not 
a  sufficient  preventative  of  crime  ;  but  that  to  teach  men 
to  be  good  is  more  effectual  than  to  punish  them  for  being 
bad.  So  long  as  the  law  was  left  to  take  its  course,  and 
no  voice  was  heard  save  that  of  the  victim,  the  justice 
which  hung  a  man  for  a  one  pound  note  was  unquestioned. 
Finally  a  change  came. 

The  first  instance  of  fraud  in  the  present  century  was 
the  defalcation  of  no  less  a  person  than  ]\Ir.  Robert 
Astlett,  cashier  of  the  Bank  of  England.  In  the  year  1803, 
Mr.  Bish,  a  member  of  the  stock  exchange,  was  applied  to 
by  Cashier  Astlett  to  dispose  of  some  exchange  bills. 
When  they  were  delivered  into  Mr.  Bish's  hands  he  was 
greatly  astonished  to  find  not  only  that  these  bills  had 
previously  been  in  his  possession,  but  that  they  had  been 
also  delivered  to  the  bank.  Surprised  at  this,  he  imme- 
diately opened  a  communication  with  the  directors,  which 
led  to  the  discovery  of  the  fraud  and  the  arrest  of  Astlett. 


IGO  HISTORY    OF   TUF. 

All  the  bank  officials  had  the  most  implicit  faith  in  Astlett's 
honesty,  and  his  theft  produced  tlic  greatest  constcrna- 
ticMi  imatjinablc. 

At  Astlett's  trial  it  was  shown  that  the  prisoner  had 
been  placed  in  sole  charge  of  all  exchequer  bills  brought 
to  the  bank,  and  it  was  his  duty  to  deliver  them  in  person 
to  the  directors,  who  counted  them,  and  a  receipt  given  to 
the  cashier.  The  prisoner,  from  his  acquaintance  with 
business,  had  induced  the  directors  to  believe  that  he  had 
handed  them  bills  to  the  amount  of  ;^700,000,  when  they 
were  only  in  possession  of  ;^500,ooo.  So  completely  did 
the  cashier  deceive  the  directors,  that  two  of  the  body 
vouched  by  their  signatures  for  the  delivery  of  the  larger 
amount. 

The  cashier  was  tried  for  the  felonious  embezzlement 
of  three  bills  of  exchequer  for  ;{^  1,000  each.  By  a  technical 
objection  of  his  counsel  the  cashier  was  acquitted.  He 
was  detained,  however,  until  the  directors  could  cause  a 
civil  process  to  be  issued  against  him.  L>om  this  plan 
they  departed,  and  Astlett  was  again  tried  for  the  criminal 
offence.  The  indictment  this  time  charged  him  with  the 
felonious  embezzlement  of  property  and  effects  of  the 
Bank  of  luigland.  He  was  found  guilty  this  time  and 
sentenced  to  death.  The  sentence,  however,  was  not 
executed,  and  Astlett  remained  a  prisoner  in  Newgate  for 
many  years.  The  bank  sustained  a  loss  through  Cashier 
Astlett's  thefts  of  ^^320,000. 

Forgeries  still  continued,  and  executions  occurred 
weekly.  Finally  a  committee  was  appointed  to  inquire 
into  and  devise  a  method  to  prevent  the  forgery  of  bank 
notes.       In    January,    18 19,  the    committee    rendered    its 


BANK    OF    ENGLAND.  161 

report.  They  stated  that  the  directors  of  the  Bank  of 
England  had  furnished  them  with  a  detailed  account  of 
one  hundred  and  eight  projects  and  specimens  of  the 
originals  for  forger-proof  notes,  and  of  the  imitation  of  the 
above  ordered  by  the  directors.  The  committee  had  com- 
munications from  seventy  outsiders  who  had  ideas.  They 
also  examined  forged  notes  of  various  l:inds.  They  finally 
concluded  that  the  greatest  degree  of  safety  would  be  in 
specially  devised  paper.  The  following  is  a  description, 
from  a  contemporary  authority,  of  the  improved  note: — 

"A  number  of  squares  will  appear  in  chequer  work 
upon  the  note,  filled  with  hair  lines  in  elliptic  curves  of 
various  degrees  of  eccentricity,  the  squares  to  be  alter- 
nately of  red  and  black  lines ;  the  perfect  mathematical 
coincidence  of  the  extremities  of  the  lines  of  different 
colors  on  the  sides  of  the  squares  will  be  effected  by  the 
arrangement  of  machinery  of  singular  fidelity.  But  even 
with  the  use  of  this  machinery  a  person  who  has  not  the 
key  to  the  proper  disposition  would  make  millions  of 
experiments  to  no  purpose.  Other  obstacles  to  imitation 
will  be  also  presented  in  the  structure  of  the  note ;  but 
this  is  the  one  principally  relied  upon.  It  is  plain  that 
any  failure  in  the  imitation  will  be  manifest  to  the  obser- 
vation of  the  most  careless ;  and  the  most  skillful 
merchants  who  have  seen  the  operation  declare  that  the 
note  cannot  be  imitated.  The  machine  works  with  three 
cylinders,  and  the  impression  is  made  by  small  convex 
cylindrical  plates." 

In  the  ten  first  years  of  the  present  century,  ^106,061 
were  refused  payment  on  the  plea  of  forgery.  In  1797,  the 
entire  cost  for  prosecuting  forgeries  was  ^1,500,  and  in  the 


\C,-2  HISTORY    OF   'IIIE 

last  three  months  of  1818  it  was  nearly  i;20,ooo.  It  was 
clear  that  the  severity  of  punishment  had  not  prevented 
the  crime  of  forgery.  The  bank  directors  were  blamed  on 
all  sides  for  their  presumed  apathy.  Every  person  who 
had  proposed  a  plan,  and  had  it  declined,  joined  the  cry. 
livery  disappointed  adventurer,  who  had  asked  for  bank 
capital  to  carry  out  his  scheme,  asserted  that  they  had  not 
inquired  into  the  particulars  but  dismissed  an  excellent 
proposal  without  due  consideration.  It  was  eventually 
found  out  that  to  prevent  a  crime  was  better  than  to  pun- 
ish it.  Education,  intelligence  and  a  note  almost  impossi- 
ble to  imitate  has  rendered  forged  Bank  of  England  notes 
well  nigh  impossible.  In  April,  1820,  forty  men  were  held 
in  London  for  counterfeiting,  and  men  were  hung  in 
strings.  From  one  or  two  manufactories  issued  most,  if 
not  all,  the  forged  notes  which  were  in  circulation  ;  and 
the  manufacturer  of  thousands  remained  unsettled  while 
the  issuer  of  one  was  hung.  They  were  sold  to  ignorant, 
uneducated,  and  almost  irresponsible  men,  for  a  few  shil- 
lings in  the  pound  ;  and  there  was  always  a  sufficient 
number  urged  by  want,  desire,  or  vice,  to  run  the  risk 
which  accompanied  their  circulation.  When  a  poor  man 
was  hung  the  public  looked  upon  the  act  as  a  virtuous 
atonement  for  an  awful  deed.  But  when  a  banker  or  gen- 
tleman was  found  in  danger  of  punishment,  the  morbid 
sympathy  of  the  people  was  excited. 

In  1822,  another  servant  was  recreant  to  his  trust. 
William  Turner,  a  clerk,  was  discovered  to  be  the  perpe- 
trator of  a  very  singular  and  intricate  fraud.  Records  of 
internal  treachery  have  not  been  plenty  in  the  Bank  of 
England.     It  was  Turner's  duty  to  place  a  certain  amount 


BANK    OF    ENGLAND.  163 

to  the  credit  of  Sir  Robert  Peel.  Pie  increased  Peel's 
credit  to  the  extent  of /;  10,000.  Having  secured  the  foun- 
dation of  the  object  which  lie  had  in  view,  the  next  move- 
ment was  to  dispose  of  the  amount  which  he  had  thus 
created  by  a  single  stroke  of  his  pen.  The  second  step 
was  effected  with  almost  as  much  facility  as  the  first,  by 
opening  an  account  in  the  fictitious  name  of  J.  Rcnn,  of 
Ilighgate,  whom  he  credited  to  the  amount  of  ^10,000. 
A  purchaser  was  found,  the  stock  appeared  to  the  credit 
of  the  seller,  and  the  transfer  was  effected. 

^  The  fraud  was  accidentally  discovered.  Great  diffi- 
culty in  fastening  the  crime  on  Turner  was  occasioned 
by  the  fact  that  he  had  covered  up  his  tracks  and  destroyed 
many  evidences  of  his  guilt.  On  the  trial,  as  the  only  wit- 
ness who  was  disposed  to  swear  decidedly  to  the  writing 
of  the  prisoner  was  answering  the  questions  put  to  him. 
Turner  whispered  to  his  counsel,  who  immediately  asked 
the  witness:—"  Do  you  believe  the  New  Testament  to  be 
a  revelation  from  God  ?  "  The  witness  hesitated,  and  the 
question  was  repeated.  "  Yes,  I  do,"  was  the  reply, 
uttered  in  a  faint  tone.  He  was,  however,  again  pressed, 
and  evidence  being  produced  to  prove  that  he  had  fre- 
quently avowed  his  disbelief,  the  prisoner's  fate  was  greatly 
decided  by  the  knowledge,  and  the  jury  returned  a  verdict 
of"  Not  Guilty." 

Turner  retained  the  money.  He  even  had  the  audac- 
ity to  visit  the  bank.  With  his  ill-gotten  money  Turner 
went  to  Italy,  purchased  a  fine  villa  on  the  shores  of  Lake 
Como.  His  stealing  amounted  to  many  thousands  of 
pounds,  more  than  originally  discovered.  He  soon  dissi- 
pated his  property  and  returned  to  England.     A  retribu- 


1G4  HISTORY    OF    THF. 

tlve  justice  overtook  him,  as  it  overtakes  mostly  all  who 
depart  from  the  path  of  rectitude,  and  he  died  in  an  obscure 
street  in  London,  in  a  cheap  lodging  house,  in  the  great- 
est povert}-. 

From  1815  to  1823,  the  Bank  of  England  lost  ^360,000 
by  what  is  known  as  the  Fauntleroy  forgeries.  Henry 
Fauntlcroy  was  a  partner  in  a  private  banking  house.  He 
was  only  twenty-five  years  of  age.  He  was  joint-trustee 
in  an  account  with  some  other  gentlemen  in  the  imperial 
three-per-cents.  He  forged  a  power  of  attorney  for  the 
sale  of  same.  No  doubt  appears  to  have  been  excited  at 
the  bank.  It  passed  the  ordeal  of  the  bank  examinations. 
In  the  management  of  the  trust  some  difficulties  arose, 
and  the  only  plan  w  hich  could  save  the  executors  was  to 
throw  the  property  into  chancery.  Fauntleroy  strenuously 
objected.  In  the  course  of  the  dispute,  one  of  the  trustees 
visited  the  bank  and  learned  the  fearful  intelligence  which 
first  led  to  the  discovery  of  a  series  of  gigantic  forgeries, 
so  gigantic  in  their  respect,  and  so  unparalleled  in  their 
nature,  as  to  border  on  the  regions  of  fiction.  Fauntleroy 
was  arrested.  Among  his  papers  was  found  this  unique 
document: — 

"  In  order  to  keep  up  the  credit  of  our  house,  I  have 
forged  powers  of  attorney,  and  have,  thereupon,  sold  out 
all  these  sums,  without  the  knowledge  of  my  partners.  I 
have  given  credit  in  the  accounts  for  interest  when  it 
became  due.  The  Bank  of  England  first  began  to  refuse 
our  acceptances,  and  thereby  destroyed  the  credit  of  our 
house.     The  bank  shall  smart  for  it. 

"Henry  Fauntleroy." 


IIANK    OF    KNCLAND.  165 

True  to  his  word,  the  bank  suffered  to  the  extent  of 
£160,000.  The  crime  excited  the  greatest  interest.  The 
pubh'c  press  teemed  with  his  doings.  He  had  a  book  con- 
taining a  classified  Hst  of  his  forgeries.  He  was  tried, 
convicted,  and  expiated  his  crime  at  Newgate  amidst 
thousands  of  spectators.  In  1832,  capital  punishment  for 
counterfeiting  was  repealed. 

In  the  month  of  October,  1841,  London  was  startled 
\vi;h  a  rumor  of  a  scries  of  forgeries.  It  was  stated  that  a 
large  number  of  the  exchequer  bills  then  in  the  market 
were  forged.  Edward  Beaumont  Smith,  chief  clerk  in  the 
exchequer  office  for  twenty-eight  years,  was  arrested  for 
the  forgery.  Smith  had  taken  genuine  bills  and  forged 
the  proper  signature.  In  every  other  respect  they  were 
genuine.  Smith  had  two  confederates.  For  five  years  did 
Smith  carry  on  his  forgeries  without  detection.  Upwards 
of  ;^8oo,ooo  were  thus  procured.  As  another  proof  that 
money  wrongfully  gained  is  easily  lost,  they  lost  nearly  all 
upon  the  stock  market.  It  was  invariably  stipulated  that 
the  very  bills  which  were  pledged  should  be  returned 
when  the  money  was  repaid,  or  on  other  exchequer  bills 
being  given.  In  this  manner  the  rascals  escaped  detection 
until  boldness  caused  a  suspicion  which  led  to  their  appre- 
hension. Smith  and  his  accomplices  were  transported  for 
life. 

In  1845,  William  Burgess,  a  clerk,  forged  a  note  for 
,{,"8,500,  and  fled  to  the  United  States.  He  was  captured 
in  Boston  and  returned  to  England  and  punished. 

The  losses  occurring  to  the  Bank  of  England  from 
forged  notes  and  other  fraudulent  documents  have  been 
commensurate    with    the    greatness    of    its    transactions. 


16(5  HISTORY    OF     IHK 

Still,  constant  vigilance  is  the  price  of  security  from  losses 
by  designing  and  unscrupulous  men.  Forgeries  and 
defalcations  of  late  years  are  not  numerous  and  wrong- 
doing of  employees  rare.  The  system  of  checks  used  in 
all  departments  renders  mistakes  almost  impossible, 
and  internal  dishonesty  so  sure  of  instant  detection  that 
crookedness  is  rarely  ever  attempted. 

At  an  average  of  the  ten  }'ears  ending  with  1831,  the 
bank  lost  through  forgeries,  ^{^40,204  per  year.  Since  then 
modern  appliances  has  reduced  this  to  almost  nothing. 

In  1872,  the  Bank  of  England  was  defrauded  of  nearly 
1,000,000  pounds  sterling,  through  the  rascality  of  four 
American  thieves,  George  and  Austin  Bidwell,  George 
McDonald  and  Edward  Hills.  These  men  discovered  an 
unguarded  loop-hole  in  the  banking  department  of  the 
bank  and  concocted  a  scheme  to  take  advantage  of  this  to 
swindle  them  to  the  best  of  their  ability.  The  bank  was 
in  the  habit  of  receiving  bills  of  exchange  in  deposit  on 
account  without  verifying  either  the  signatures  or  the 
acceptances,  and  stowing  them  away  until  they  became 
due. 

These  men  managed  to  secure  the  necessary  intro- 
duction, and  opened  an  account  with  the  bank  under  an 
assumed  name.  They  then  had  hundreds  of  bills  of 
exchange  printed  on  counterfeit  plates,  and  flooded  the 
Bank  of  England  with  these  bills  from  all  over  the  world, 
profusely  signed  and  accepted,  and  the  bank  unhesitat- 
ingly cashed  them  and  put  the  proceeds  to  the  credit  of 
the  rascals,  which  were  drawn  out  in  ostensible  business 
transactions  in  such  a  manner  as  not  to  excite  the  sus- 
picion of  the  bank  officials.     On  one  occasion   the  rascals 


HANK    0|-    KNCLANI).  1G7 

neglected  to  date  the  acceptance  of  two  of  the  fraudulent 
bills.  These  were  sent  by  the  bank  to  the  acceptors  to 
supply  the  omission  and  the  fraud  was  at  once  discovered 
and  exposed.  The  four  men  were  apprehended  after  an 
exciting  chase  by  detectives,  and  upon  trial  were  all  given 
life  sentences.  George  Bidwell  was  pardoned  in  1888  and 
returned  to  the  United  States.  The  other  men  are  still  in 
prison  although  a  determined  effort  is  being  made  by  their 
friends  to  obtain  their  release. 


CHAPTER    XII. 


MANAGEMENT  OF  THE  NATIONAL  DEBT. 

ManagcDii'iit  of  all  Other  Stocks  Held  by  the  Bank — Ilotv 
the  Work  is  Performed  by  the  Bank  of  England — 
Stock  Offices — Dividend  Pay  Office — Cheque  Office 
—  Unclaimed  Dividcjids — Stock  Office  Library — Num- 
ber of  Books  in  Library — A  Perfect  System — iy8,ooo 
Distinct  Accounts — Register  Office — Post  Warrant 
Office-- The  Routine  Work  of  Above  Named  Offices 
Described — Names  of  the  Governors  of  the  Bank  of 
England  from  i6p^  to  iS88. 


Tin:  management  of  the  national  debt,  and  of  all  the 
other  stocks  which  are  inscribed  at,  and  the  interest  on 
which  is  payable  by,  the  bank  of  England,  is  conducted  in 
the  Department  of  the  Chief  Accountant,  who  is  respon- 
sible for  the  due  performance  of  the  various  duties.  The 
work  is  divided  into  the  following  offices — viz..  Stock, 
Transfer,  Dividend,  Post  Warrant,  Cheque,  Register 
Office,  Unclaimed  Dividend,  and  the  Stock  Office  Library. 
Each  of  these  is  under  the  superintendence  of  a  Principal 
and  Deputy-Principal,  and  the  whole  of  them  are  under 
the  control  of  one  head,  called  the  Controller  of  Stock 
Offices,    who   again    is   under   the  Chief  Accountant.     A 


RANK    OF    F.NGI.ANn.  101) 

brief  description  of  the  work  of  tlie  various  offices  having 
in  charge  the  national  debt  and  other  pubUc  stocks  will 
be  found  interesting. 

Stock  Office — The  bank,  in  its  capacity  of  man- 
ager or  account-keeper  of  the  national  debt,  neither  buys 
nor  sells,  although  as  bankers,  or  in  their  corporate 
capacity,  they  may  buy  or  sell,  as  may  any  other  stock- 
holders, liuying  and  selling  stock  is  carried  on  principally 
through  the  intervention  o(  stock-brokers.  A  person 
wishes  to  buy  /^i,ooo  of  a  particular  stock,  say  X3  per 
cent,  consols  ;  he  applies  to  In's  stock-broker,  who  deals 
with  a  person  called  a  stock-jobber,  and  having  agreed  as 
to  the  price,  the  broker  sends  to  the  bank  a  transfer 
ticket  or  request  to  have  a  certain  amount  of  stock  trans- 
ferred from  the  name  A,  a  seller,  to.l^,  a  buyer. 

One  of  the  clerics  of  the  bank,  who  attends  to  the 
stock  transactions  of  all  accounts  beginning  with  letter  A, 
refers  to  the  ledger  to  see  that  such  an  amount  of  stock  is 
on  the  account  of  A,  and  he  then  copies  from  the  transfer 
ticket  left  by  the  broker,  into  a  book  called  the  transfer 
book,  which  consists  of  blank  forms  of  transfer,  printed 
according  to  the  regulation  of  the  Acts  of  Parliament,  the 
name  into  which  the  stock  of  A  is  required  to  be  placed. 
In  the  meantime  the  broker  has  prepared  a  document 
called  the  stock  receipt,  agreeing  in  the  main  particulars 
with  the  entry  made  in  the  transfer  book;  and  when  A 
comes  to  make  the  transfer  (having  previously  been  iden- 
tified to  the  satisfaction  of  the  bank),  he  signs  the  book, 
which  is  a  formal  discharge  to  the  bank  for  that  amount 
of  stock,  and  the  stock  receipt,  which  is  handed  to  1),  the 
buyer,    as    an    acknowledgement    both    for    the    monc}- 


170  HISTORY    OF    THE 

received  in  purchase  of  the  stoclc,  and  a  memorandum  that 
the  said  amount  of  stock  has  been  transferred  to  ]^.  From 
that  moment  A  ceases  to  have  any  control  over  that  par- 
ticular amount  of  stock.  It  is  at  once  entered  in  the  name 
of  15.  and  B  stands  in  the  place  of  A,  and  can,  in  like 
manner,  on  being  identified,  deal  with  the  stock  by  selling 
to  C.  It  matters  not  into  how  many  accounts  A  may 
wish  to  transfer  his  stock;  for  if,  instead  of  selling  the 
whole  amount  to  B,  he  sells  one-half,  or  i^ioo,  or  sixpence, 
the  same  operation  goes  on  with  respect  to  that  particular 
part,  as  if  he  were  selling  all  the  amount  standing  in  his 
name.  Each  transfer  is  a  perfect  deed  of  conveyance,  and, 
when  completed,  the  transaction  is  entered  in  a  journal, 
from  which  it  is  then  posted  in  the  ledger. 

The  dividends  on  all  British  government  stock, 
except  the  i^2  15.?.,  and  the  £2  \os.  per  cent,  annuities, 
are  paid  half-yearly,  either  in  January  and  July,  or  April 
and  October. 

Dividend  Office — Immediately  previous  to  the  first 
day  of  payment,  the  dividend  books  and  the  warrants  are 
passed  from  the  Transfer  Offices  into  the  Dividend  Office. 
The  books  being  arranged  on  the  counter  in  alphabetical 
order,  and  the  warrants  deposited  in  drawers  inside  the 
counters,  both  are  presided  over  by  a  numerous  staff  of 
clerks,  whose  duty  it  is  to  deliver  the  warrants  to  the 
stockholders  as  they  appear  to  receive  their  dividends. 
The  parties  applying  must  name  the  amount  of  stock  of 
which  they  may  be  possessed.  If  right,  the  applicant  is 
required  to  sign  the  dividend  book  as  an  acknowledge- 
ment that  the  dividend  warrant  has  been  received,  and 
the  warrant  for  the  amount  is  then  handed  to  him. 


BANK    OK    ENGLAND.  171 

In   the  Dividend   Pay  Office   arc   paid   the   dividends 
on:  — 

1.  liritish  Government  Funds  (including  Life  Annui- 

ties, the  warrants  for  wliich   are  prepared  and 
issued  by  the  National  Debt  Office,  Old  Jewry). 

2.  Indian  Government  Debt. 

3.  Indian   Railways   purchased   by  tiie  Cjovernmcnt. 

4.  Metropolitan  Board  of  Works  and  City  of  London 

Debts. 

5.  Various  Colonial  and  British  Corporation  Stocks. 

6.  Turkish  Guaranteed  Loan. 

7.  Bank  Stock. 

On  some  of  these  stocks  the  dividends  are  payable 
only  by  warrant,  on  others  on!}-  b)'  coupon. 

The  warrant  answers  the  double  purpose  of  being  a 
cheque  payable  on  demand,  as  well  as  a  receipt ;  the 
coupon  is  payable  to  bearer,  but  must  be  left  for  examina- 
tion three  clear  days  before  being  paid.  Postal  Warrants 
are  only  paid  through  a  banker,  but  warrants  other  than 
these,  and  coupons,  arc  paid  cither  through  a  banker,  or 
over  the  counter,  in  notes  or  coin,  as  may  be  desired. 

The  work  of  this  office  has  been  largely  augmented 
of  late  years,  owing  partly  to  the  great  additions  made  in 
colonial  and  corporation  stocks,  and  the  growing  tendency 
to  pay  dividends  quarterly  instead  of  half-yearly.  At  the 
heaviest  periods  of  the  j-ear,  when  as  many  as  50  clerks 
are  employed,  from  io,oco  to  12,000  separate  dividend 
warrants  are  paid  in  a  single  day,  about  3,000  of  these 
being  presented  at  the  counter  for  payment  in  notes  and 
coin.  Great  care  is  required  in  the  manipulation  of  both 
warrants  and  coupons.      After  examination  and  pa\-ment. 


172  HISTORY    OF    THE 

the  warrants  are  cancelled  by  a  small  portion  being 
punched  out,  the  form  and  position  of  the  punch  mark 
denoting  the  date  on  which  the  warrants  were  paid. 

Dividends  are  now  paid  on  75  stocks;  the  warrants 
number" about  400,000,  and  the  coupons  350,000,  represent- 
ing a  value  of  about  ;^38,ooo,ooo,  and  a  capital  stock  of 
about  ^"900,000,000. 

Cheque  Office — The  warrants  paid  in  the  Dividend 
Office  are  handed  over,  day  by  day,  to  the  Cheque  Office. 
The  duty  of  this  office  is  to  make  up  the  amount  of  all  the 
warrants  passed  to  it,  and  see  that  they  agree  in  the 
arrrrregate  with  the  amount  paid  upon  them  by  the  Divi- 
dend Office.  The  warrants  are  from  time  to  time  sorted 
into  numerical  order  (which  brings  them  into  alphabeti- 
cal order),  and  are  then  entered  in  journals  marked  with 
letters  corresponding  to  the  stock  ledgers.  The  total  of 
these  journals  should  agree  with  the  amount  paid  as  rep- 
resented in  the  cash  books. 

Unclaimed  Dividends — It  must  be  obvious  that 
from  many  causes  amounts  of  stock,  and  the  dividends 
thereon,  will  from  time  to  time  remain  unclaimed.  Per- 
sons die  intestate,  and  the  relatives  are  not  aware, 
perhaps,  that  they  were  possessed  of  stock.  Others  leave 
the  country,  and,  perhaps,  never  return.  When  such 
amounts  have  remained  unclaimed  for  ten  years,  they  are 
transferred  to  the  account  of  the  commissioners  for  the 
reduction  of  the  national  debt,  but  the  persons  entitled  to 
same  can  make  their  claim  good  at  any  time  and  receive 
their  money. 

Stock  Office  Library— The  Stock  Office  Library 
of  the  bank  contains  the  old  stock  ledgers,  transfer  books, 


BANK    OF    KXGLAND.  173 

dividend  books,  power  of  attorney  cases,  and   numerous 
other  books  and  documents,  from  the  cstabhshmcnt  of  the 
bank  in  1694,  commencing  with  the  original  of  bank  stock 
created  at  that  early  period,  and   embracing  the  various 
government    stocks^,  and   securities   from    the    respective 
dates  of  their  creation  down  to  the  present   time.      There 
are  about  65,000  of  these  books  and  documents,  which  are 
all  placed  under  the  immediate  charge  of  a  librarian,  and 
so  systematically  and  conveniently  arranged  that  reference 
can  readily  be  made  to  any  of  them.      They   are   all   in 
good  condition,  and  their  due  preservation  is  a  matter  of 
considerable  moment.     It  is  not  too  much  to  assert  that 
the  titles  of  all  who  have  at  any  time  been  possessed  of 
government  stock,  can  be  proved  by  these  means  readily. 
No  reference,  however,  can  be  made  but  by  those  persons 
connected  with  the  business  of  the  respective  stock  offices, 
and  all  references  are  registered,  being  signed  for  by  the 
parties  making  them.     The  books  in  this  library  contain  a 
very  interesting   and  valuable   collection   of  autographs, 
embracing  among  their  number  those  of  some  of  the  most 
remarkable  persons  of  their  day.     The   number  of  books 
in  the  Stock  Office  Library  in  July,  18S8,  was:   ledgers 
and  alphabets,  4,200 ;    transfer  books,   27,675  ;    dividend 
books,  20,642;  powers  of  attorney,    10,210;    odd    books, 
4,280 — total,  67,007. 

To  carry  out  the  management  of  the  national  debt 
about  175  persons  are  employed,  wuth  an  additional 
staff  of  about  30,  when  dividends  arc  paid.  Ten  rooms 
are  entirely  devoted  to  the  purpose,  and  upwards  of  1,700 
books  are  in  constant  use.  The  remuneration  made  to  the 
bank  for  this  service  is  regulated  by  an  Act  of  1861,  and 


174  HISTORY    OF    THF. 

amounts  at  the  present  time  to  something  over  i;2 10,000 
per  annum.  Formerly,  the  compensation  to  the  bank  for 
managing  the  national  debt  was  at  the  rate  of  ;^45o  per 
million,  but  it  is  now  only  ^^300  per  million.  From  the 
elaborate  character  of  the  offices  and  arrangements,  it  will 
be  readily  understood  that  the  cost  of  this  department  is 
very  great,  and  it  is  thought  the  net  profit  is  not  more 
than  one-third  of  the  amount  received. 

There  is  involved,  in  the  course  of  each  year,  the  pay- 
ment, twice  over,  on  178,000  accounts,  of  the  interest  on 
nearly  ;^630,000,000  of  money.  In  no  other  country  of 
the  civilized  world  is  there  exhibited  so  bright  an  example 
of  national  integrity  on  the  one  hand,  and  of  simple, 
unsuspecting  confidence  on  the  other,  as  is  shown  in  this 
vast  monetary  connection  betwixt  the  government  and 
the  people. 

Register  Office — Another  office  immediately  con- 
nected with  the  management  of  the  national  debt  is  the 
Register  Ofifice.  In  this  office  a  registration  is  made  of 
all  wills  and  administrations  exhibited  at  the  bank,  for  the 
purpose  of  substantiating  claims  to  the  various  amounts 
of  stock  standing  in  the  names  of  persons  deceased.  On 
the  following  day  they  are  delivered  up  to  the  parties  de- 
positing the  same,  or  to  their  order  ;  and,  in  the  mean- 
time, the  deceased  person's  account  will  have  been  "  made 
dead,"  as  it  is  called,  in  the  bank  books,  in  the  various 
stock  accounts  in  which  his  name  may  appear.  In  this 
way,  upwards  of  5,000  wills  and  administrations  are  dealt 
with  annually. 

Post  Warrant  Office— The  work  in  this  office 
varies  considerably,  being  especially  heavy  at    the   four 


BANK    OF    ENGLAND.  175 

quarterly  periods  of  the  year,  when  the  permanent  staff 
of  the  office  requires  to  be  largely  supplemented  by  extra 
hands  to  assist  in  making  out  the  lists  and  post  the  war- 
rants. In  the  year  1886-7,  as  many  as  131,783  warrants 
were  thus  sent. 

It  is  not  intended  to  give  here  a  list  of  all  the  stocks 
which  are  registered,  and  the  interest  on  which  is  payable 
at  the  Bank  of  England.  The  mode  of  dealing  with  all 
stocks  is,  as  near  as  circumstances  will  admit,  similar  to 
that  adopted  in  the  case  of  the  national  debt.  The  facili- 
ties given  are  equal  to,  if  not  in  excess  of,  what  could  be 
afforded  by  any  other  establishment,  and  the  system  is 
such  that  every  transaction  can  be  referred  to  with  the 
least  possible  delay, 

NAMES   OF  THE 

Governors  of  the  Bank  of  England 

From  its  foundation  in  1G94  to  A.  1).  1888. 


1G94-95-96.  Sir  John  Houblon. 

1697-1698.  Sir  William  Scawen. 

1699-1700.  Nathaniel  Tench. 

1701-1702.  John  Ward. 

1703-1704.  Abraham  Houblon. 

1705-1706.  Sir  James  Bateman. 

1707-1708.  Francis  Evles. 

1709-1710.  Sir  Gilbert  Heathcote. 

1711-1712.  Nathaniel  Gould. 

1713-1714.  John  RuDGE. 


170  '  history  of  the 

1715-1716.  Sir  Peter  Delme. 

1717-171S.  Sir  Gerard  Conyers. 

1719-1720.  John-  Hanger. 

1721-1722.  Sir  Thomas  Scawen. 

1723-1724.  Sir  Gilbert  Heathcote. 

1725-1720.  William  Thompson. 

1727-1728.  Humphry  Morice. 

1729-1730.  Samuel  HoLDEN. 

1731-1732.  Sir  Edward  Bellamy. 

1733-1734.  The  Hon.  Horatio  Townsend. 

1735-1736.  BuYAN  Benson. 

1737-38-39.  Thomas  Cooke, 

1 740.  Delillers  Carbonnel. 

1741-1742.  Stamp  Brooksbank. 

1743-1744.  William  Fawkener. 

1745-1740.  Charles  Savage. 

1747-1748.  Benjamin  Longust. 

1749-50-51.  WiLLiAN  Hunt. 

1752-1753.  Alexander  Sheafe. 

1754-1755.  Charles  Palmer. 

1756-1757.  Matthews  Beachcroft. 

1758-1759.  Merrik  Burrell. 

1760-1761.  Bartholomew  Burton. 

1762-1763.  Robert  Marsh. 

1764-1705.  John  Weyland. 

1760-07-08.  Matthew  Clarmont. 

1709-1770.  William  Cooper. 

1771-1772.  Edward  Payne. 

1773-1774.  James  Sperling. 

1775-1776.  Samuel  Beachcroft. 

1777-1778.  Peter  Gaussen. 

1779-1780.  Daniel  Booth. 


BANK    OF    ENGLAND.  177 


1781-1782.  William  Ewer. 
1783-1784.  Richard  Neave. 
1785-1786.  George  Peters. 
1787-1788.  Edward  Darell. 
1789-1790.  Mark  Wevland. 
1791-1792.  Samuel  Bosanquet. 
1793-1794.     Godkrey  Thornton. 

1795-1796.  Daniel  Giles. 

1797-1798.  Thomas  Raikes. 

1799-1800.  Samupx  Thornton. 

1801-1802.  Job  Mathew. 

1803.  Joseph  Nutt. 

1804-1805.  Benjamin  Winthrop. 

1806-1807.  Beeston  Long. 

1808-1809.  John  Whitmore. 

"1810-1811.  John  Pearse. 

1812-1813.  William  Manning. 

1814-1815.  William  Mellish. 

1816-1817.  Jeremiah  Harman. 

1818-1819.  George  Dorrien. 

1820-1821.  Charles  Pole. 

1822-1823.  John  Bowden. 

1824-1825.  Cornelius  Buller. 

1826-1827.  John  Baker  Richards. 

1828-1829:  Samuel  Drewe. 

1830-31-32.  John  Horslev  Palmer. 

1833-1834.  Richard  Mee  Raikes. 

1835-1836.  James  Pattison. 

1837-1838.  Timothy  Abraham  Curtis. 

1839-1840.  Sir  John  Rae  Reid,  Bart. 

1841.  Sir  John  Henry  Pelly,  Bart. 

1842-43-44.  William  Cotton. 


178  history  of  the  bank  of  england. 

1845-1846.  John  Benjamin  Heath. 

1847.  William  R.  Rodinson. 

1847-1848.  Ja.mes  Morris. 

1849-1850.  Henry  James  Prescott. 

1851-1852.  Thomson  Hankf.y,  Jr. 

1 853-1 8.'.4.  John  Gellibrand  Hibbard. 

1855-1856.  Thomas  Matthias  Weguelin. 

1857-1858.  Sheffield  Neave. 

1859-1860.  bonamy  dobree. 

1861-1802.  Alfred  Latham. 

1863-1864.  KiRKMAN  Daniel  Hodgson. 

1865-1866.  Henry  Lancelot  Holland. 

1867-1868.  Thomas  Newman  Hunt. 

1869-1870.  Robert  Wigram  Crawford. 

1871-1872.  George  Lyall. 

1873-1874.  Benjamin  Buck  Greene. 

1875-1876.  Henry  Hucks  Gibbs. 

1877-1878.  Edward  Howley  Palmer. 

1879-1880.  John  William  Birch. 

1881-1882.  Henry  Riversdale  Grenfell. 

1883-1884.  John  Saunders  Gilliat. 

1885-1886.  James  Pattison  Currie. 

1887-1888.  Mark  Wilks  Collet. 


CHAPTER  XIII. 


INTERNAL  WORKINGS  OF  THE  BANK  OF  ENGLAND. 

Private  Drawing  Office — Public  Drawing  Office —  What  is 
Considered  a  Remunerative  Balance — Working  Ac- 
counts —  Niimbcr  of  Bills  Issued —  Business  in  the 
Bill  Office — Branch  Banks,  and  How  Conducted — 
Drawing  Accounts  and  Discount  Accounts — Impor- 
tant Service  Performed  by  Branch  Banks — Number 
and  Location — Rules  and  Regulations  Under  Which 
Accounts  are  Received  in  the  Bank  of  England — De- 
nomination of  Bank  of  England  Notes. 


The  Private  Drawing  Office  is  devoted  entirely  to 
the  management  of  private  accounts.  Any  person  desir- 
ing to  open  a  drawing  account  at  the  Bank  of  England, 
must  be  respectably  introduced  to  the  chief  cashier,  the 
sole  condition  being  that  the  account  shall  be  remunera- 
tive to  the  bank.  This  condition  will  be  fulfilled  if  the 
ordinary  balance  on  the  account  be  sufficient  to  enable 
the  bank,  by  the  use  of  such  balance  at  the  average  rate 
of  interest  for  money,  to  realize  a  profit  over  and  above 
the  expense  of  keeping  the  account.  The  amount  of 
balance  required  in  order  that  an  account  may  be  consid- 
ered   remunerative,   will,    of   course,    depend    upon    the 


180  HISTORY   OF   THE 

number  of  cheques  paid,  and  tlie  amount  of  work  other- 
wise required  to  be  done.  There  is  no  stipulated  sum 
insisted  upon  as  a  cash  balance;  but  the  head  of  the  office 
will  always  explain  to  any  person,  on  his  opening  an 
account,  what  kind  of  balance  would  be  deemed  remunera- 
tive. As  a  rough  guess,  it  has  been  considered  that 
unless  the  bank  can  receive  as  interest,  during  the  year, 
6(L  for  every  entry  of  a  cheque  paid,  there  would  be  no 
adequate  remuneration. 

Suppose,  for  instance,  that  a  customer  keeps  an 
average  balance  of  i^Soo,  it  would  be  necessary  to  keep 
;^ioo  unemployed,  and  the  remaining  ;{;400,  at  3  percent., 
would  yield  an  interest  of  ;^I2  a  year.  Now,  if  not  more 
than  480  cheques  are  drawn  in  the  year,  the  balance  would 
be  considered  remunerative,  480  at  6d.  being  ^12.  If, 
however,  such  account  were  used  at  the  rate  of  1,000 
cheques,  or  drafts  for  payment,  in  the  course  of  the  year, 
the  case  would  be  different.  A  few  accounts  are  allowed 
to  be  kept  without  the  necessity  of  a  balance  being 
insisted  upon  ;  but  a  charge,  in  proportion  to  the  quantity 
of  work  required  to  be  done,  is  made  annually — this  plan 
is,  however,  an  exception  to  the  general  rule. 

The  bank  affords  every  convenience  to  its  customers, 
and  will  buy,  or  sell,  or  take  charge  of  securities,  receive 
their  dividends  of  all  kinds,  and  make  payments  at  almost 
any  place  ;  and  although  accounts  are  not  allowed  to  be 
overdrawn,  the  bank  is  always  ready  to  discount  bills,  if 
considered  good,  for  its  customers,  and  to  make  advances 
on  such  securities  as  it  is  in  the  habit  of  receiving  ;  but 
these  advantages  are  only  afforded  to  those  who  keep 
either  their  sole  account  at  the  bank,  or  what  is  considered 


BANK    OF    ENGLAND.  181 

a  remunerative  balance.  It  is  the  duty  of  the  head  of  the 
office  to  see  that  all  the  accounts  are  fairly  worked,  and 
that  the  bank  is  thus  remunerated  for  the  work  done.  If 
an  account  is  not  considered  to  be  fairly  worked,  the  cus- 
tomer is  communicated  with,  and  if  the  representations 
made  are  not  attended  to,  the  account  is  ordered  to  be 
closed. 

The  bank,  through  the  Private  Drawing  Office,  grants 
bills  due  at  seven  days'  or  sixty  days'  date,  the  value  be- 
ing paid  in   cash  when  the   bills  are  taken   out,  and  the 
bank  becoming  responsible  for  the  payment  of  the  bills  at 
maturity.     These  bills,  which  can  be  taken  out  for  uneven 
amounts,  are  a  great  convenience  to  persons  having  occa- 
sion to  remit  money  to  various  parts  of  England,  or  even 
foreign  countries,  as  they   are  readily  taken  all  over  the 
world  upon  the  credit  of  the  Bank  of  England  ;  and  the 
person  wishing  to  make  a  remittance  knows  that  the  only 
expense  is  the  loss  of  the  interest  on   the  money.     There 
is  generally  an  outstanding  balance   of  about    i^i 70,000, 
which  the  bank  may  make  use  of;  the  interest  which  can 
be  made,  minus  the  expense  of  the  office  and  printing  the 
bills,  being  to  the  profit  of  the  bank.     There  are  about 
40,000  bills  issued  in  the  course  of  the  year  in  London 
and  at  the  branches,  representing  an  aggregate  of  about 
^5,000,000.      All  the    money   collected    throughout    the 
country  by  the  revenue  officers  for  customs  and   excise 
dues,  taxes,  etc.,  are  paid  into  it,  and  all  payments  on  ac- 
count   of  the  public  service    are   made    by  orders  made 
on  it. 

The  separation  of  the  public  from  the  private  accounts 
is   merely  made  to  insure,  by  the   subdivision   of  labor. 


182  HISTORY    OF  THE 

greater  convenience,  both  to  the  pubhc  generally  and  to 
the  clerks  of  the  bank.  There  is  no  practical  difference 
whether  money  is  paid  or  received  on  a  government  ac- 
count, or  on  any  other  account  which  may  be  kept  at  this 
separate  department  ;  all  receipts  in  the  day  go  to  the 
credit  of  deposits,  and  all  payments  are  charged  to  de- 
posits, and  the  balance  at  the  close  of  the  day  must  agree 
with  the  cash  brought  in  to  the  cashiers  as  money  not 
used,  after  accounting  for  all  payments  and  receipts  made 
during  the  day  ;  and  the  daily  business  of  the  bank  is  not 
considered  as  concluded  until  the  balance  is  found  correct. 

In  the  Bill  Office  all  bills  of  exchange  belonging  to 
customers,  or  bills  which  have  been  discounted  and  be- 
long to  the  bank,  are  kept  duly  sorted  and  so  arranged  as 
to  be  presented  without  fail  at  maturity.  All  cheques 
paid  into  the  Private  and  Public  Drawing  Offices,  and 
all  cheques  received  from  the  country,  are  sent  to  this 
office  for  collection,  and  the  proceeds  passed  to  the  credit 
of  their  respective  owners.  Cheques  and  bills  on  clear- 
ing bankers  are  collected  through  the  clearing  house; 
those  on  non-clearing  bankers,  merchants  and  others, 
through  the  out-tellers'  department.  There  is  a  collec- 
tion for  the  latter  class  at  eleven  o'clock  in  the  forenoon 
for  cheques,  etc.,  paid  to  account  in  the  Drawing  Offices 
the  previous  day,  and  another  collection  at  one  o'clock 
for  those  paid  in  on  the  same  day.  Cheques  and  bills  on 
clearing  bankers  are  sent  to  the  clearing  house,  the  last 
charge  being  made  up  to  3.45  o'clock.  All  cheques  paid 
in  up  to  that  hour  may  be  drawn  against  the  same  day. 

Although  this  office  adds  nothing  to  the  revenues  of 
the  bank,  it  is    most  important   in  the   economy   of  the 


BANK    OF    ENGLAND.  •  183 

general  business,  performing,  as  it  does,  the  part  of  col- 
lecting agent  for  the  other  departments,  in  presenting, 
under  a  system  which  insures  unerring  precision  and 
great  promptitude,  all  the  cheques,  etc.,  which  they  have 
received,  and  all  bills  or  interest  notes  which  are  payable 
at  a  distant  date. 

If  cheques  requiring  collection  at  a  distance  arc  pai 
in  to  the  credit  of  an  account,  time  must  bt  allowed  for 
the  receipt  of  money  before  it  can  be  drawn  against;  but 
the  endeavor  of  the  ^ank  of  England  is  to  afford  every 
facility  consistent  with  security  to  enable  its  customers 
to  make  use  of  every  kind  of  order  for  payment,  by  turn- 
ing it  into  cash  as  quickly  as  practicable.  In  the  Private 
Drawing  Office  there  are  about  1 12  clerks  employed,  and 
nearly  200  books  are  in  constant  use. 

The  Public  Drawing  Office,  as  its  name  implies,  is 
devoted  to  the  custody  of  the  drawing  accounts  of  the 
government  and  various  public  companies  and  institutions, 
although  there  is,  of  course,  practically  no  difference 
between  the  accounts  of  the  government  and  those  of  the 
private  customers  of  the  bank. 

When  branch  banks  of  the  Bank  of  li^ngland  were  first 
broached  they  were  not  viewed  with  favor  by  country 
bankers,  who  saw  that  their  profits  and  influence  would  be 
depreciated.  Since  1826,  the  bank  has  established 
branches  in  some  of  the  great  commercial  towns.  I'ollow- 
ing  will  be  found  the  mode  of  conduct  of  business,  which 
is  about  the  same  as  the  parent  bank  : — 

For  instance,  the  branch  at  Liverpool,  and  the  same 
is  true  of  those  established  in  other  places,  is  to  be  a 
secure  place  of  deposit  for  persons  having  occasion   to 


184  .  HISTORY   OF   THE 

make  use  of  a  bank  for  that  purpose.  Such  persons  arc 
said  to  have  drawing  accounts.  To  facilitate  to  the  mer- 
cantile and  trading  classes  the  obtaining  discounts  of  good 
and  unexceptionable  bills,  founded  upon  real  transactions, 
two  approved  names  are  required  upon  every  bill  or 
note  discounted.  These  are  called  discount  accounts. 
The  applications  of  parties  who  desire  to  open  discount 
accounts  at  the  branch  are  forwarded  to  the  parent  bank 
in  London  for  approval.  When  approved,  good  bills  may 
be  discounted  at  branches  without  further  reference  to 
London.  Bills  payable  at  London,  or  any  place  where  a 
branch  is  established,  are  discounted  under  this  regula- 
tion. The  dividends  on  any  of  the  public  funds,  which 
are  payable  at  the  Bank  of  England,  may  be  received  at 
any  branch  by  persons  who  have  opened  drawing  accounts, 
after  signing  powers  of  attorney  for  that  purpose,  which 
the  branch  will  procure  from  London.  No  charge  is  made 
in  this  case,  except  the  expense  of  the  power  of  attorney 
and  the  postage  incurred  in  transmitting  it.  Purchases 
and  sales  of  every  description  of  government  securities 
are  effected  by  the  branch  at  a  charge  corresponding  to 
that  made  by  the  local  bankers  where  the  branch  is  sit- 
uated. A  commission,  including  brokerage  in  London, 
and  all  expenses  of  postage,  is  charged  on  paying  at  the 
Bank  of  England  bills  accepted  by  persons  having  draw- 
ing accounts  at  branches.  All  branches  grant  bills  on 
London,  payable  at  seven  days'  date,  without  acceptance, 
for  sums  of  ;^  10  and  upward.  Persons  having  a  drawing 
account  at  a  branch  may  order  money  to  be  paid  at  the 
bank  in  London  to  their  credit  at  the  branch  and  vice 
versa.     Bank  post  bills,  which  are  accepted  and  due,  are 


BANK  OF  i:ngland.  185 

received  at  the  branch  from  parties  having  drawinjj 
accounts.  No  interest  is  allowed  on  deposits.  No 
advance  is  made  by  a  branch  upon  any  description  of 
landed  or  other  properly,  nor  is  any  account  allowed  to  be 
overdrawn.  The  notes  are  the  same  as  those  issued  by 
the  parent  establishment,  except  being  dated  at  the 
branch,  and  made  payable  there  and  in  London. 

There  are  two  branches  in  London  and  nine  in  the 
country.     Those  in  London  are  the  Western  Branch  and 
the  Law   Courts   Branch.     They  do  not  issue  notes,  but 
carry  on  only  just  such  banking  business  as  is  carried  on 
by    other    banks    in    the    same    districts.      The  countr\- 
branches,  naming  them  in  order  of  their  importance,  are  : 
Liverpool,  Manchester,  Newcastle-on-Tyne,  Leeds,    Bir- 
mingham, Hull,  Bristol,  Plymouth,  Portsmouth.     These  all 
carry  on  ordinary  banking  business,   but   do  not   compete 
for  it  very  keenly.     Their  business  mainly  lies  in  the  issue 
of  notes,  and  in  affording  convenience  for  the  collection 
of  the  revenue,  and  for  the  disbursements  of  some  of  the 
large  government  establishments.     The  notes  issued  by 
each  branch  are  payable  in  cash  only  at  that  branch,  and 
notes  issued  by  the  head  office  are,  likewise,  payable  there 
only. 

The  branches  of  the  Bank  of  England,  both  in  Lon- 
don and  in  the  country,  each  of  which  is  under  the  charge 
of  an  agent  and  sub-agent,  are  all  perfectly  subordinate  to 
the  parent  establishment.  They  carry  on  all  the  ordinary 
business  of  local  banking,  such  as  receiving  deposits  pay- 
able on  demand,  transmitting  money,  receiving  money  for 
customers  at  all  places,  and  taking  charge  of  securities  ; 
in  short,  each  branch  carries  on  the  same  kind  of  business 


186  HISTORY    OF   THR 

as  is  conducted  in  the  drawing  (or  ordinar}-  banking) 
offices  in  London  in  addition  to  the  issue  of  bank  notes 
(so  far  as  the  country  branches  are  concerned),  seven  days' 
bills,  or  bills  at  longer  dates.  The  notes  issued  at  a  par- 
ticular branch  are  payable  in  cash  only  at  that  branch,  or 
in  London  ;  and  it  should  be  borne  in  mind  that  bank 
notes  issued  by  the  head  office  are  not  payable  in  cash  on 
demand  at  any  of  the  branches,  whether  in  London  or  the 
country.  The  accounts  are  balanced  every  night,  exactly 
as  in  London,  and  the  balance  sent  up  to  London  daily  by 
post,  together  with  particulars  of  all  the  transactions  of 
each  day.  Any  sum  of  money  may  be  remitted  from  Lon- 
don to  any  branch,  or  between  the  respective  branches, 
where  also  stockholders  can  now  have  their  dividends 
paid.  There  are  nine  of  these  country  branches,  and 
about  one  hundred  and  fifty  persons  are  employed  at 
them.  One  of  the  most  important  services  performed 
through  the  branch  banks  is  the  remittance  of  the  rev- 
enue, which  is  paid  over  by  the  collectors  at  the  various 
places  of  receipt  to  clerks  attending  from  the  branch 
banks  for  the  purpose.  Credit  is  then  immediately  given 
to  the  exchequer  account  in  London,  so  that  the  revenue 
is  made  available  for  the  public  service  with  the  least 
possible  loss  of  time. 

Following  arc    the    rules    and    regulations    for    the 
general  conduct  of  the  business  of  the  Bank  of  England: — 

1.  All    letters    should    be    addressed    to    the    chief 
cashier. 

2.  It  is  desirable  that  drafts   should   be   drawn   upon 
cheques  furnished  by  the  bank. 


DANK    OK    ENGLAND.  187 

3.  Cheques  upon  city  bankers,  eastward  of  King 
street,  Cheapsidc, — 

Paid  in  by  I2  o'clock  may  be  drawn  for  after  i. 
Do.  2  o'clock         "  "  after  3. 

4.  Cheques  paid  in  after  2,  and  before  3  o'clock,  and 
cheques  upon  all  other  London  bankers  paid  in  before  12 
o'clock,  may  be  drawn  for  on  the  following  morning. 

5.  Cheques  paid  in  after  3  o'clock  are  sent  out  at  9 
the  following  morning,  and  may  be  drawn  for  as  soon  as 
received. 

6.  Dividend  warrants  are  received  at  the  drawing 
office  until  4  o'clock  in  the  afternoon  for  all  persons  hav- 
ing accounts  at  the  bank. 

7.  It  is  requested  that  notice  be  given  at  the  draw- 
ing office  of  bills  accepted  payable  at  the  bank,  with  the 
date  of  their  maturity. 

8.  Persons  keeping  a  arawing  account  with  the  bank 
(although  not  having  a  discount  account)  ma}'  tender  bills 
for  discount  through  the  drawing  office.  Application  for 
discounts  or  for  advances  on  stock,  exchequer  bills,  &c., 
must  be  made  before  2  o'clock. 

9.  Bills  of  exchange  and  notes  not  paid  when  due 
v/ill  be  noted. 

10.  The  bank  will  make  purchases  or  sales  of  British 
or  foreign  securities  upon  an  order  in  writing  addressed  to 
the  chief  cashier  ;  and  dividends  on  stock  maybe  received 
under  powers  of  attorney  granted  to  the  cashiers  of  the 
bank. 

11.  Exchequer  bills,  bonds,  railway  debentures,  or 
any  other  securities  may  be  deposited,  and  the  interest, 
when  payable,  will  be  received  and  placed  to  account. 


188  HISTORY    or    THE 

12.  Credits  paid  into  account  are  received  without 
the  bank-book,  and  are  afterwards  entered  therein  without 
the  party  claiming  them. 

13.  Notes  of  country  bankers,  payable  in  London, 
are  sent  out  the  same  day  for  payment  if  paid  in  before 
3  o'clock. 

14.  The  pass-books  should  be  left  at  the  drawing 
office,  at  least  once  a  month,  to  be  written  up. 

15.  Where  post-bills  are  required,  or  a  payment  is  to 
be  made  to  any  office  of  the  bank  by  cheque  on  the  Bank 
of  England,  the  cheque  must  be  presented  at  the  office 
upon  which  it  is  drawn,  and  exchanged  for  an  order  on 
the  post-bill  office,  or  on  the  office  at  which  the  payment 
is  to  be  made. 

16.  Cash-boxes  taken  in,  contents  unknown,  for  such 
parties  as  keep  accounts  at  the  bank. 

17.  A  person  having  a  drawing  account  may  have  a 
discount  account  ;  but  no  person  can  have  the  latter  with- 
out at  the  same  time  having  the  former.  When  a  discount 
account  is  opened,  the  signatures  of  the  parties  are 
entered  in  a  book  kept  for  that  purpose,  and  powers  of 
attorney  are  granted  empowering  the  persons  named  in 
them  to  act  for  their  principals.  Bills  of  exchange  having 
more  than  95  days  to  run  are  not  eligible  for  discount. 

A^.  />. — All  changes  in  the  residence  of  persons  keep- 
ing cash  at  the  bank  are  requested  to  be  made  known  at 
the  drawing  office ;  and  it  is  particularly  requested  that 
no  gratuities  be  offered  to  the  clerks  of  the  banking 
offices,  such  gratuities  being  strictly  forbidden. 

The  denominations  of  Bank  of  England  notes  are  £^, 
£^0,  ^20,  £10,  £so,  £\oo,  ;^200,  i;300,  ;^5oo,  ;^  1,000.     No 


BANK    OF    ENGLAND.  1^9 

notes  are  issued  of  less  than  £S.  during  the  years  from 
1797  to  i82i,the  bank  issued  notes  for  £i  and  i:2,  but 
they  ceased  issuing  them  in  the  latter  year,  and  paid 
them  off  in  1822. 


CHAPTER   XIV. 


BUSINESS  OF  THE  BANKING  DEPARTMENT. 

How  it  is  Conducted — Anwiints  Cheques  may  be  Drawn 
for — Opening  an  Account  with  the  Bank — Business 
the  Bank  Transacts  for  Customers — Bank  Deposits — 
Profits  of  the  Bank — How  Derived — Expenses  of  the 
Bank —  Weekly  Bank  Statement  Given  and  A  nalyzed — 
Proportion  of  Assets  to  Liabilities. 


The  business  of  the  Banking  Department — which, 
except  as  regards  the  magnitude  of  its  transactions,  and 
the  current  accounts  of  other  bankers  and  of  the  govern- 
ment, differs  but  little  from  that  of  any  other  London  or 
American  bank — is  carried  on  chiefly  in  the  Private  Draw- 
ing Office,  the  Public  Drawing  Office,  the  Discount  Office 
and  the  Bill  and  Post  Bill  Offices.  Besides  these  offices, 
there  are  the  Dividend  Pay  Office,  devoted  to  the  cash 
payment  of  dividends,  and  the  chief  cashier's  office,  where 
advances  on  securities  and  the  various  public  loans  are  in- 
itiated, and  to  which  is  attached  the  private  room  of  the 
chief  cashier,  which,  for  the  most  part,  corresponds  with 
the  manager's  room  in  any  ordinary  bank. 

Formerly,  the  business  transacted  at  the  Bank  of 
ICngland  was  so  much  encumbered  with  forms  and  condi- 


BANK    OF    ENGr.AND.  191 

tions,  that  the  generality  of  merchants  and  ordinary  peo- 
ple rarely  thought  of  employing  it  to  keep  their  money  or 
make  their  payments.  But  in  this  respect  an  entire 
change  has  been  effected.  Cheques,  the  minimum  amount 
of  which  was  formerly  i^io,  may  now  be  drawn  for  any 
amount,  great  or  small  ;  and  all  sorts  of  banking  business 
is  conducted  with  facility  and  dispatch,  and,  it  may  be 
added,  with  perfect  security. 

The  bank  opens  banking  accounts,  or,  as  they  are 
called,  "  drawing  accounts,"  for  the  safe  custod}',  and  the 
receipt  and  payment  of  cash,  not  only  with  merchants  and 
traders,  but  with  all  persons  who  choose  to  keep  their 
money  at  a  banker's  and  draw  cheques  against  it.  The 
bank  also  takes  charge  of  its  customer's  bills  of  exchange, 
the  exchange  of  exchequer  bills,  the  receipt  of  dividends, 
etc.,  free  of  charge.  Plate  chests,  and  deed  and  security 
boxes,  may  be  deposited  free  of  expense,  by  customers, 
for  safe  custody.  The  bank  looks  to  the  average  balance 
of  cash  on  each  account  to  compensate  for  the  trouble  and 
expense  for  keeping  it,  and  in  this  respect  the  require- 
ments of  the  bank  are  certainly  not  greater  than  those  of 
ordinary  bankers.  No  particular  sum  is  to  be  lodged  on 
opening  an  account,  it  is  only  necessary  that  the  party 
should  be  known  as  respectable,  and  in  a  condition  to 
require  a  banking  account.  But  the  bank  receives  and 
holds  sums  of  money  for  safe  custody  for  parties  who  have 
no  current  accounts. 

The  bank  affords  every  convenience  to  its  customers, 
and  buys  or  sells  or  takes  care  of  securities,  receives  divi- 
dends of  all  kinds,  and  makes  payments  anywhere  re- 
quired.    Although  the  accounts    are   not   allowed    to  be 


192  HISTORV    OF   THE 

overdrawn,  it  is  always  ready  to  discount  satisfactory  bills 
for  its  customers,  and  to  make  advances  on  a  certain  class 
of  securities.  In  brief,  it  is  what  all  other  banks  are,  and 
this  part  of  its  business  is  conducted  on  substantially  the 
same  basis  as  theirs,  with  perhaps  a  little  more  caution 
and  exclusiveness. 

It  is  not  necessary  to  enter  at  length  on  the  subject 
of  the  general  management  of  the  bank,  as  the  principle 
on  which  business  is  carried  on  does  not  differ  from  any 
other  well-conducted  bank.  The  average  amount  of  de- 
posits being  known,  and  due  regard  paid  to  the  temporary 
or  permanent  character  of  the  same,  the  first  duty  of 
every  banker  is  to  invest,  in  the  best  banking  securities, 
all  above  the  amount  to  which  such  deposits  are  likely  to 
be  reduced. 

When  it  is  considered  that  the  total  deposits  in  the 
Bank  of  England  vary  from  ;^30,ooo,ooo  to  ^40,000,000,  it 
can  readily  be  imagined  that  the  securities  in  which  these 
deposits  are  invested,  and  the  amount  kept  daily  in  re- 
serve, form  a  very  important  part  of  the  duty  devolving 
on  the  directors,  and  especially  on  the  governors,  who 
have  all  such  accounts  and  charges  under  their  direct 
observation. 

The  principal  item  in  the  private  deposits  is  the  total 
of  the  balances  of  the  other  London  bankers.  From  1845 
to  1877,  a  return  was  made  showing  the  amount  of  the 
banker's  balances,  but  since  the  latter  date  this  informa- 
tion has  not  been  given.  In  1845  and  1846,  the  totals  of 
these  balances  averaged  respectively  ;^i, 250,000  and 
;C  1,400,000,  whilst  in  1877  they  averaged  ;^9,500,ooo.  It 
is  by  means  of  this  office  that  the  London  bankers  make 


BANK    OF    ENGLAND.  193 

all  their  settlements  between  one  another.  The  non- 
clearini^  bankers  pay  all  charges  presented  by  bankers  by 
means  of  drafts  on  a  clearing  banker  or  upon  the  Bank  of 
England.  The  clearing  bankers  settle  their  differences  at 
the  clearing  house  by  means  of  transfers  from  their  own 
accounts  to  that  of  the  clearing  house,  or  vice  versa,  the 
clearing  house  having  also  an  account  at  the  bank,  and,  of 
course,  the  transactions  therein  balance  every  day,  with 
the  exception  of  the  trifling  difference  running  on  for 
errors  in  the  settlement. 

The  total  of  deposits,  both  public  and  private,  held 
by  the  Bank  of  England  at  its  head  office  and  its  branches, 
on  15th  of  August,  1888,  was  ^^27,777, 836.  This  was  some- 
what  below  the  usual  figure.  In  the  ten  years,  1876- 1885, 
the  deposits  averaged  more  than  ^31,000,000. 

As  to  the  profits  earned  by  the  Bank  of  England, 
there  have  on  many  occasions  been  reports  made  to  par- 
liament giving  particulars  of  the  principal  sources  of 
profit,  but  some  of  these  have  been  materially  reduced 
during  recent  years.  In  the  first  place,  the  charge  for* 
managing  the  National  Debt  is  i^300  per  million.  The 
management  of  the  entire  public  debt  of  Great  Britain  is 
placed  in  the  hands  of  the  Bank  of  England.  Then  again 
the  profits  on  the  note  issue  is  considerable.  The  bank 
also  has  the  profits  to  be  derived  from  the  use  of  its  depos- 
its. There  is  generally  an  average  of  about  ^20,000,000 
to  be  employed  in  various  ways.  There  is  also  the  profit 
on  the  buying  and  selling  of  gold  in  the  bullion  depart- 
ment, which  is  stated  as  bringing  in  from  ^25,000  to  i^45,- 
000  per  annum.  There  is  also  the  interest  receivable  on 
the  investment  of  the  large  capital,  ^14,553,000.     Of  this. 


194  HISTORY    OF   THE 

;{;i  1,015,100  is  lent  to  the  government,  and  bears,  at  pres- 
ent, 3  per  cent,  interest.  The  remainder  is  invested  in 
miscellaneous  British  securities.  There  is  also  a  profit 
derived  from  the  agencies.  The  estimated  net  profits  of 
the  bank  are  about  X"  1,450,000  per  annum. 

Although  the  profits  are  large,  there  are  deductions 
to  be  made.  The  bank  has  to  pay  to  the  government 
i;6o,ooo  per  annum  for  the  stamp  duty  on  its  notes,  and  a 
fixed  sum  of  i;i20,ooo  out  of  the  profits,  besides  the  whole 
profit  on  the  ;{;2,200,ooo  extra  issue  against  securities.  In 
1886,  the  bank  paid  to  the  government  under  these  three 
heads  £2iT„8gS,  being  more  than  ;{;20,ooo  over  the  amount 
received  for  the  management  of  the  national  debt.  No 
account  is  ever  rendered  of  the  profits  or  expenses  of  the 
bank  for  public  perusal. 

The  "  Banking  Department"  of  the  Bank  of  England 
is  the  separation  of  the  ordinary  banking  business  from 
the  business  of  financial  agency  and  issuing  notes. 

The  Bank  Act  of  1844  does  not  touch  the  manage- 
ment of  the  Banking  Department  in  any  way  beyond 
requiring  that  a  weekly  statement  of  its  assets  and  liabil- 
ities shall  be  published.  A  specimen  statement  is  given 
following  this  paragraph.  This  statement — which  forms 
part  of  the  "Bank  Return"—  may  be  thus  analyzed.  On  one 
side  are  the  liabilities,  divided  into  the  liability  towards 
the  proprietors  of  the  bank,  as  shown  by  the  amounts  of 
"Proprietors'  Capital"  and  "Rest"  (which  latter  is  practi- 
cally an  addition  to  the  capital);  the  liability  to  the 
government,  as  shown  by  the  amount  of  "  Public  Deposits," 
which  are  the  balances  of  different  government  accounts; 
tlic  liability  to  the  customers,  as  shown  by  the  amount  of 


BANK    OF    EN'Or^AND.  195 

the  "Other  Deposits,"  which  are  the  sum  of  the  balances 
of  the  current  or  "drawing"  accounts  and  the  liability  to 
the  holders  of  the  bank's  acceptances,  as  shown  by  the 
amount  of  "Seven-day  and  other  Bills"  in  circulation.  On 
the  other  side  of  the  statement  are  the  assets  by  which 
these  liabilities  are  represented,  divided  into  "  Govern- 
ment Securities,"  which  show  the  amount  of  the  banking 
capital  invested  in  government  securities;  the  "Other 
Securities,"  which  show  the  amount  of  other  investments 
made  by  the  bank;  and,  separately,  the  "  notes"  and  "gold 
and  silver  coin,"  which  show  the  amount  of  cash  in  hand 
for  the  current  purposes  of  the  Banking  Department. 
This  sum  of  notes  and  gold  and  silver  coin  forms,  so  to 
speak,  the  cash  assets  of  the  bank,  and  the  proportion 
which  it  bears  to  the  current  liabilities  disclosed  by  the 
public  and  other  deposits  and  seven-day  bills  is  called  the 
proportion  of  reserve  to  liabilities,  and  is  always  a  matter 
of  great  interest,  and  often  of  great  anxiety,  to  London 
on  Thursdays,  the  day  on  which  the  "Bank  Return"  is 
issued. 

The  question  of  the  proportion  which  these  cash 
assets  should  bear  to  liabilities  is  one  of  extreme  import- 
ance to  a  prudent  banker.  It  is  generally  considered  that 
it  should  be  about  one-third.  The  publication  of  the 
weekly  bank  return  is  useful  and  important  to  commerce, 
banking  and  finance.  The  Bank  of  England,  through 
its  banking  department,  undertakes  duties  merely  to- 
wards its  own  customers  and  the  government.  Its 
banking  business  is  conducted  for  the  most  part  (in  theory, 
at  all  events,)  on  the  same  lines  as  any  other  banking 
institution. 


jijO  HISTORY    OF   Tlir.    BANK    OF    ENGLAND. 

HANK    OF   ENGLAND   STATEMENT. 
Following  is  a  specimen    of  the  weekly  bank   state- 
ment issued  in  conformity  with  the  Act  of  Parliament  of 
1S44,  viz.  :  — 

.•\n  account  pursuant  to  the  Act  7  and  8  Vict.  cap.  3'2,  for  the  week  ending  on 
Wednesday,  August  22,  1888. 

Issue  Department. 


Notes  Issued jC3o,lU,220 


/:r^  164,220 


Dated  the  21st  day  of  August,  1888. 


Government  Debt ;^11, 015,100 

Other  Securities T),  184,900 

Gold  Coin  and  Bullion.     18,964,220 
Silver  Bullion 

;^35, 164,220 


F.  May,  Chief  Cashier. 


Banking    Department. 


Proprietors'  Capital. . . .  ;^  14, 5.53, 000 

Rest 3,390,734 

Public  Deposits  (includ    | 

ing   Exchequer,  Sav-  I 

ings  Banks,  Conimiss-  [    3,143,939 

ioners  of  Nat'l.  Debt,  | 

&  Dividend  Accounts)  J 

Other  Deposits 24,118,044 

7  Day  and  other  Bills.    .         172,358 

;^45,378,075 


Dated  the  21st  day  of  August,  1888. 


Government  Securities.  _;^15, 017,396 

Other  Securities 18,433,287 

Notes 10,587,105 

Gold  aud  Silver  Coin...       1,340,287 


;^45,378,075 


F.  May,  Chief  Cashier. 


The  prominent  feature  in  the  re.turn  is  the  separation 
of  the  business  of  the  bank  into  the  two  distinct  depart- 
ments, dealing  respectively  with  Issue  and  Banking. 


CHAPTER    XV. 


DISCOUNTS,  DIVIDENDS,  LOANS  AND  RULES. 

Duties  of  the  Discount  Office — Precaution  Before  Dis- 
counting —  Powers  of  the  Directors  —  Who  Are 
Allowed  Discount  Accounts — Checking  a  Speculative 
Tendency — Inconsistency  of  Long  Date  Discounts — 
Opinion  of  an  English  Writer — Real  and  Fictitious 
Transactions — Rules  to  Observe — Who  Controls  the 
Rate  of  Discount?  —  False  Notions  Regarding  the 
Power  of  the  Bank  of  England — Rate  of  Discount 
from  I7P4  to  Date — Dividends  on  Bank  of  England 
Stock  from  16^4.  to  1888 — The  Price  of  Bank  Stock 
and  How  Boiizht  and  Sold. 


The  Discount  Office  is  charged  with  the  reception  of 
all  bills  offered  for  discount  by  parties  who  have  opened 
discount  accounts  with  the  bank.  These  bills  are  sub- 
mitted to  a  committee  of  directors  (sitting  daily  for  the 
purpose)  who  decide  upon  the  amount  of  accommodation 
to  be  granted  and  the  rate  of  discount  to  be  charged. 
The  net  proceeds  of  the  bills  discounted  are  then  passed 
to  the  credit  of  the  customer's  account,  while  the  bills 
themselves  are  entrusted  to  the  care  of  the  Bill  Office, 
which  occupies  itself  with  the  duty  of  sorting  and  arrang- 


198  IlISTORV    OF   THE 

ing  them  so  that  they  may  be  duly  presented  for  payment 
at  maturity. 

The  bank  employs  a  certain  amount  of  its  usual  de- 
posits in  discounting,  as  it  is  considered  one  of  the  very 
best  modes  in  which  money  payable  on  demand  can  be 
safely  used.  If  the  sum  so  employed  were  generally  kept 
up  to  about  the  same  proportion  of  the  deposits,  say  one- 
third  or  one-half,  the  utmost  limit  of  the  date  at  which 
bills  become  due,  commonly  called  the  cckcance,  being 
ninety  days,  and  the  average  about  sixty-eight  days,  the 
amount  returning  to  the  bank  for  bills  daily  falling  due 
would  be  about  the  same  ;  and  thus  a  very  satisfactory 
control  over  these  resources  of  the  bank  would  be  main- 
tained. But  this  state  of*  things,  owing  to  the  ordinary 
habits  of  London,  and  the  great  dependence  placed  on  the 
Bank  of  England  to  supply  additional  funds  at  periods 
when  money  or  capital  has  become  unduly  engaged,  it  is 
extremely  difficult  to  maintain  ;  and,  consequently,  in  the 
management  of  this  description  of  security  the  greatest 
care  is  required.  It  has  been  held  by  some  authorities 
that  the  power  of  raising  the  rate  of  interest  to  an  un- 
limited extent  is  sufficient  to  protect  the  Bank  of  Eng- 
land against  an  undue  amount  of  pressure  ;,  but,  prac- 
tically, this  has  not  been  exercised  with  much  severity. 
It  has  very  frequently  occurred  that,  after  a  long  succes- 
sion of  very  low  rates  of  interest,  indicating  a  great 
abundance  of  unemployed  capital,  an  extent  of  business 
has  been  undertaken  far  beyond  what  a  judicious  regard 
to  safety  should  have  induced  ;  and  if,  when  this  state  of 
things  is  in  existence,  any  sudden  apprehension  of  an  ap- 
proaching scarcity  of  capital  should  occur,  no  rise  in  the 


BANK    OF    KNGLAND.  199 

rate  of  discount  at  the  bank  will  immediately  check  the 
demand  ;  on  the  contrary,  for  a  certain  time  the  very  op- 
posite effect  may  be  produced,  and  it  is,  therefore,  very 
necessary  for  the  Bank  of  England  to  have  other  sources 
on  which  it  may  depend  for  a  supply  of  money  on  such 
occasions. 

But  the  prevalent  desire  to  extend  discount  opera- 
tions, especially  by  those  banking  establishments  who 
make  their  money  principally  by  the  difference  between 
the  interest  allowed  on  deposits,  and  that  which  they  can 
make  by  employment  of  the  same,  renders  it  quite  im- 
possible for  the  bank,  however  prudently  its  own  business 
may  have  been  managed,  to  make  others,  with  whose  con- 
duct it  has  nothing  whatever  to  do,  equally  circumspect. 
At  particular  periods,  for  many  years  past,  it  has  invari- 
ably been  found  that  the  Bank  of  England  has  been 
looked  to  for  an  unusual  supply  of  money,  at  the  very 
time  when  other  banking  establishments,  and  especially 
the  bill  brokers  of  London,  have  had  less  available  money 
at  their  command  than  usual. 

Any  person  who  is  carrying  on  a  respectable  business 
in  London  can  have  a  discount  account  at  the  Bank  of 
England,  if  introduced  by  any  director  to  whom  he  may 
be  known,  or  by  introduction  to  the  governors  with  such 
references  as  they  maj/  think  fit  to  require;  and  when 
once  introduced  and  a  discount  account  opened,  he  may 
send  in  bills  daily  for  discount,  the  quality  of  the  bills,  and 
the  amount  to  be  granted,  being  subject  to  the  approval 
of  the  directors  in  daily  attendance. 

The  Bank  of  England  rarely  discounts  bills  that  have 
more  than  two,  or  at  most  three  months  to  run.     The  dis- 


200  HISTORY   OF  THE 

counting  of  bills  at  long  dates  is  a  powerful  stimulus  to 
unsafe  speculation.  When  individuals  obtain  loans  which 
they  are  not  to  be  called  upon  to  pay  for  six,  twelve,  or, 
perhaps,  eighteen  months,  they  are  tempted  to  adventure 
in  speculations  which  arc  not  expected  to  be  wound  up 
till  some  proportionately  distant  period ;  and  as  these  not 
unfrcquently  fail,  the  consequence  is  that,  when  the  bills 
become  due,  there  is  commonly  little  or  no  provision 
made  for  their  payment.  In  such  cases,  the  discounters, 
to  avert  an  imminent  loss,  sometimes  consent  to  renew 
the  bills.  But,  while  a  proceeding  of  this  sort  is  rarely 
productive  of  ultimate  advantage  to  either  party,  the  fact 
of  its  having  taken  place  makes  other  adventurers  reckon 
that,  in  the  event  of  their  speculations  proving  to  be  less 
successful  than  they  anticipated,  their  bills  will  be  treated 
in  the  same  manner,  and  thus  aggravates  and  extends  the 
evil. 

In  other  respects,  too,  the  discounting  of  bills  at  long 
dates,  or  their  renewal,  or  the  making  of  permanent  loans, 
is  altogether  inconsistent  with  sound  banking  principles, 
for  it  prevents  the  bankers  from  having  that  command 
over  their  resources  which  is  advantageous  at  all  times, 
and  indispensable  in  periods  of  difficulty  or  distress. 

In  the  discounting  of  bills,  a  great  deal  of  stress  is 
usually  laid,  or  pretended  to  be  laid,  on  the  distinction 
between  those  that  arise  out  of  real  transactions  and  those 
that  are  fictitious  or  that  are  intended  for  accommodation 
purposes.  The  former  are  said  to  be  legitimate,  while  the 
latter  arc  stigmatized  as  illegitimate.  Mr.  Thornton,  in 
his  work  on  the  Paper-Credit  of  Great  Britain,  has  shown 
that  the  difference  is  neither  so  well  marked  nor  so  wide 


BANK    OF    ENGLAND.  201 

as  many  suppose.  A  notion  seems  to  be  generally  enter- 
tained that  all  real  bills  are  drawn  against  produce  of  one 
sort  or  other,  which  (or  its  value)  is  supposed  to  form  a 
fund  for  their  payment.  Such,  however,  is  not  always, 
nor  even  most  commonly,  the  case. 

A,  for  example,  sells  to  B  certain  produce,  for  which 
he  draws  a  bill  at  sixty  days'  date.  But  prices  are  rising, 
trade  is  brisk,  or  a  spirit  of  speculation  is  afloat,  and,  in  a 
week  or  two  (sometimes  much  less),  B  sells  the  produce 
at  an  advance  to  C,  who  thereafter  sells  it  to  D,  and  so  on. 
Hence  it  may,  and,  in  fact,  frequently  does  happen,  that 
bills  amounting  to  four,  five,  or  even  ten  times  the  value  of 
a  quantity  of  merchandise,  have  grown  out  of  its  success- 
ive sales,  before  the  first  of  the  series  has  become  due. 
And  not  only  this,  but  bills  are  themselves  very  frequently 
rediscounted ;  and  in  this  case  the  credit  of  the  last 
indorser  is  generally  the  only  thing  looked  to  ;  and  there 
is  not,  perhaps,  one  case  in  ten  in  which  any  inquiries  are 
made  in  regard  to  the  origin  and  history  of  the  bills, 
though  they  are  often  of  the  most  questionable  descrip- 
tion. 

On  the  whole,  therefore,  it  would  seem  that  the  real 
or  presumed  solvency  of  the  parties  signing  a  bill,  and 
responsible  for  its  payment,  is  the  only  safe  criterion  by 
which  to  judge  whether  it  should  or  should  not  be  dis- 
counted. But  the  fact  of  a  merchant  or  other  trader 
offering  accommodation  bills  for  discount  ought  unques- 
tionably to  excite  a  suspicion  that  he  is  trading  beyond 
his  capital. 

A  writer  in  an  English  magazine  says: — 

"  Besides  bills  avowedly  intended  for  accommodation 


202  HISTIIRY    OF    THE 

purposes,  another  and  a  different  variety  of  such  bills  is 
drawn  by  parties  at  a  distance  from  each  other,  often  men 
of  straw,  and  made  to  appear  as  if  they  were  bottomed  on 
real  transactions.  Bills  of  this  sort  are,  it  is  greatly  to  be 
regretted,  always  current,  and  often  to  a  large  extent.  Of 
course  no  person  of  respectability  can  be  knowingly  con- 
nected with  such  bills,  which  are  almost  always  put  in 
motion  either  to  bolster  up  some  bankrupt  concern,  or  to 
cheat  and  defraud  the  public.  But  despite  the  mischief  of 
which  they  are  productive,  it  appears  to  be  pretty  gen- 
erally supposed  that  the  currency  of  these  bills  is  an  evil 
which  cannot  be  prevented.  There  can,  however,  be  no 
real  doubt  that  it  may,  at  all  events,  be  very  greatly 
diminished ;  and  this  desirable  result  would  be  effected 
were  it  enacted  that  all  bills  shall  henceforth  bear  upon 
their  face  what  they  really  are ;  that  those  that  are 
intended  for  accommodation  purposes  shall  have  at  their 
head  the  words  ''Accoinniodation  bill;"  and  that  those 
only  shall  bear  to  be  for  "  value  received  "  that  have  grown 
out  of /^iv/rt^c/<?  transfers  of  property.  An  enactment  of 
this  sort  could  not  be  felt  as  a  grievance  by  anyone  unless 
he  had  a  fraudulent  purpose  in  view.  And  were  the 
impressing  of  a  false  character  on  a  bill  made  a  criminal 
offence,  punishable  by  several  years'  imprisonment,  there 
is  every  probability  that  a  formidable  check  would  be 
given  to  the  issue  of  spurious  bills,  and  to  the  manifold 
abuses  to  which  the  practice  gives  rise." 

Bill  discounters,  who  have  got  fictitious  paper  on 
their  hands,  and  attempt  to  get  rid  of  it  by  concealing  its 
character  or  representing  it  in  a  favorable  light,  make 
themselves  parties  to  the  fraud.     Such  conduct  is  so  very 


liANK    OK    KNGI.AN'I).  203 

flagitious,  that  when   it  can  be  fairly  brought  home  to  the 
parties,  it  should   subject  them  to  the  severest  penalties. 

The  Bank  of  England  is  so  large  a  holder  of  money 
that  to  some  extent  it  controls  the  rate  of  discount  ;  the 
discount  it  demands  determines  all  other  banks  in  fixing 
their  rate.  Many  persons  believe,  the  late  Walter  Bage- 
hot  has  written,  that  the  Bank  of  England  has  some  pe- 
culiar power  of  fixing  the  value  of  money. 

Mr.  Bagehot  further  says  : — "  They  see  that  the  bank 
varies  its  minimum  rate  of  discount  from  time  to  time, 
and  that,  more  or  less,  all  other  banks  follow  its  lead,  and 
charge  as  much  as  it  charges,  and  they  are  puzzled  why 
this  should  be.  The  explanation  is  simple.  The  value 
of  money  is  settled  by  the  law  of  supply  and  demand,  as 
that  of  all  other  commodities  is.  The  Bank  of  England 
used  to  be  the  predominant,  and  is  still  a  most  important, 
dealer  in  money.  It  states  the  lowest  price  at  which  it 
will  dispose  of  its  stock  of  money,  and  its  quotation  en- 
ables other  dealers  to  obtain  that  price,  or  something 
near  it.  The  reason  is  obvious.  At  all  ordinary  moments 
there  is  not  enough  money  in  the  market  unless  some  is 
taken  from  the  Bank  of  England.  As  soon  as  the  bank 
rate  of  interest  is  fixed,  a  great  many  persons  who  have 
bills  to  discount  try  to  see  how  much  cheaper  than  at  that 
rate  they  can  get  them  done  for.  They  seldom  can  get 
them  done  for  much  less  than  the  bank  would  charge,  for  if 
they  did  every  one  would  leave  the  bank,  and  the  outer 
market  would  have  more  bills  than  it  could  bear.  Should 
the  bank  see  this  beginning,  it  would  lower  its  rate,  so  as 
to  secure  a  reasonable  portion  of  the  business  to  itself" 

The  notion   that  the  Bank  of  Ensjland  has  absolute 


201  HISTORY    OF   THE 

control  over  the  money  market,  and  can  fix  the  rate  of  dis- 
count as  it  likes,  has  survived,  continues  Mr.  Bagehot, 
from  the  days  before  1844,  when  it  could  issue  as  many 
notes  as  it  liked,  and  even  then  the  notion  was  a  mistake. 

In  order  to  understand  the  action  of  the  Bank  of  Eng- 
land correctly,  it  must  always  be  borne  in  mind  that,  since 
the  Act  of  1844,  the  directors  have  had  no  control  over 
that  part  of  the  currency  which  consists  of  bank  notes  ; 
that  is,  they  have  had  nothing  whatever  to  do  with  the 
amount  at  any  time  in  circulation  in  the  country.  The 
only  function  of  the  bank  in  this  respect  is  to  give  notes 
for  sovereigns,  when  the  latter  exceed  five  in  number,  or 
for  bar  gold,  and  to  give  or  return  sovereigns  for  every 
bank  note  presented  for  payment. 

The  rates  of  discount  charged  by  the  bank  since  its 
establishment  are  as  follows  : 

Per  cent. 

From  Aug.  8,  1694,  to  Aug.  30,  1694,  on  foreign  bills  6 

Aug.  30,  1694,  to  Jan.  16,  1695,  on   foreign  bills  4^ 

Oct.    24,  1694,  to  Jan.  16,  1695,  on   inland    bills  6 

Jan.   16,  1695,  to  May  19,  1695,  on  foreign  bills  6 
Jan.   16,  1695,  to  May  19,  1695,  to  customers  of 

tlie  bank 3 

Jan.   16,  1695,  to  July  26,  1716,  on  inland  bills.  4^ 

May  19,  1695,  to  Feb.  28,  1704,  on  foreign  bills  4 
May  19,  1695,  to  Feb.  28,  1704,  on  foreign  bills 

not  payable  at  the  bank 5 

I'eb.  28,  1704,  to  June  22,  17 10,  on  foreign  bills  5 
June  22,  1710,  to  July  26,  17 16,   on  foreign  and 

inland  bills 4 

July  26,    1716,    to    April  30,  1719,  on   bills  and 

notes 5 


BANK    OF    ENGLAND,  205 

Oct.  27,  1720,  to  Aug.  23,  1722,  on  bills 4 

Aug.  23,  1722,  to  Oct.  18.  1742,  on  inland   bills  5 

Aug.  23,  1722,  to  Oct.  18,  1742,  on  foreign  bills  4 

Oct.  18,  1742,  to  Dec.  12,  1744,  on  foreign  bills  5 
Dec.  12,  1744,  to    May  i,  1746,  on  foreign  bills 

( 1 5  days  to  run) 4 

Dec.  12,  1744,  to  May  i,  1746,  on  inland  bills.  .  5 
May    I,    1746,   to  June    20,  1822,  on  bills  and 

notes  (95  days  to  run) 4 

June  20,  1822,    to    Dec.  13,  1825,  on    bills    and 

notes  (95  days  to  run) 5 

Dec.    13,    1825,    to   July  5,  1827,    on    bills    and 

notes  (95  days  to  run) 5 

July    5,  1827,   to  July    21,    1836,    on    bills    and 

notes  (95  days  to  run) 4 

July    21,    1836,    to    Sept.  I,  1836,  on   bills    and 

notes  (95  days  to  run) 4^ 

Feb.    13,    1838,  to  May   16,    1839,  on  bills  and 

notes  (95  days  to  run) 4 

May   16,    1839,  to  June  20,   1839,    on    bill    and 

notes  (95  days  to  run) 5 

Aug.  I,  1839,  to  Jan.   23,    1840,    on    bills    and 

notes  (95  days  to  run) 6 

Jan.  23,  1840,  to  Oct.  15,  1840,  on  65-day  bills.  5 

Oct.  15,  1840,  to  June  3,  1841,  on  95-day  bills.  5 

June  3,  1841,  to  April  7,  1842,  on  95-day  bills.  5 

April  7,  1842,  to  Sept.  5,  1844,  on  95-day  bills.  4 

Sept.  5,  1844,  to  March  13,  1845,  on  bills 2^- 

Sept.  5,  1844,  to  March  13,  1845,  on  notes 3 

Since  1845,  the  changes  have  been  more  numerous.    In 

1847,  there  were    10    changes;     in    1861,    13;   1864,  14; 


206 


HISTORY    OF   THE    T.AXK    OF   ENGLAND. 


1873,14;  1879,  13;  1884,10;  and  so  on,  with  hun- 
dreds of  fluctuations  to  date.  We  give  above  the  rate  for 
many  different  years,  which  is  enough  to  show  the  fre- 
quency of  changes  and  uncertainty  in  the  rates  of  dis- 
counts. 

The  dividends  on  bank  stock  of  the  Bank  of  England 
from  the  estabhshment,  in  1694,  to  the  present  time,  1888, 
have  been  as  follows: — 

Years. 
694. 
697. 
708. 
729. 
730. 

731- 

721. 
728. 

747- 
753- 
764. 

767- 
78.. 
7S8. 
807. 
823. 

839- 
852. 

853- 
856. 

859-       .  .      ^ 

863.     84  "  1888.     c>\  "        Est. 

864. 

The  stock  is  bought  and  sold  upon  the  market  in  the 
same  manner  as  other  stocks  are  dealt  in.  For  many 
years  past  the  dividend  paid  has  averaged  about  9  per 
cent.,  and  the  price  of  the  stock  has  generally  been 
quoted  about  300.  Of  late  it  has  participated  in  the  gen- 
eral rise  in  price  of  first-class  securities,  and  is  now 
quoted  at  about  325. 


Dividend. 

8  per  cent. 

9  " 

j  Varied  from  9  to 

(        5^  per  cent. 

6 

5i 
6 

5i 

5 

4* 

5 

5i 

6 

7 

10 

8 

7 

7\ 

8 

9\ 
8^ 
8f 
9f 


Years. 

Dividend. 

1865. 

nil 

5er  cent. 

1866. 

lOi 

" 

1867. 

10 

*' 

IS68. 

8 

it 

1869. 

8f 

t( 

1872. 

9^ 

(t 

1873- 

10 

(( 

1874. 

10 

«( 

1875- 

9 

u 

1876. 

9 

it 

1877. 

9h 

i< 

1878. 

9\ 

i( 

1879. 

\oh 

i( 

1880. 

9\ 

It 

I881. 

9\ 

(( 

1882. 

\6h 

it 

1883. 

io\ 

it 

1884. 

9f 

tt 

1885. 

10 

it 

1886. 

9\ 

ti 

1887. 

^ 

ii 

1888. 

9h 

" 

CHAPTER   XVI. 


ENGLISH  AND  AMERICAN  CLEARING    HOUSES. 

Hoiv  they  Originated  in  Londo^u — Primitive  Manner  of 
Conducting  Business — How  Transacted  To-day  and 
Amount  of  Business  Annually  Done — A  Clearing 
House  for  Country  Bankers — American  Clearing 
Houses — Detailed  Statement  of  the  Routine  Business 
in  the  New  York  Clearing  House — Scene  i>i  the  Clear- 
ing Room  During  Business  Hours — Specimen  Credit 
Ticket — Hozv  the  Banks  are  Represented  and  Settle- 
ments A  re  Made —  The  Settling  Clerk  and  the  Deliv- 
ery Clerk — Duties  of  the  Proof  Clerk — Specimen 
Sheet  of  Clearing  House  Proof — Penalty  for  Making 
Errors — Specimen  Sheet  of  Settling  Clerk's  State- 
ment. 


Not  many  years  after  the  London  bankers  had 
ceased  to  issue  notes,  the  inconvenience  of  making  all 
payments  in  Bank  of  England  notes  and  gold  had  become 
so  great,  that  some  change  was  indispensably  necessary, 
when  the  plan  of  adjusting  each  other's  daily  payments  by 
an  interchange  of  liabilities  was  adopted,  as  the  best  mode 
of  economizing  the  use  of  money. 


203  HIsrORY    OF    THE 

At  first  the  system  adopted  was  of  the  most  primitive 
kind,  and  certainly  not  the  safest.  The  clerks  of  the  vari- 
ous banking  houses  used  to  perform  the  operation  ol 
exchanges  at  the  corners  of  streets  and  on  the  top  of  a 
post  ;  then  they  met  by  appointment  at  a  public  house  ; 
but,  from  the  insecurity  of  these  arrangements  it  was  at 
last  thought  best  that  the  principal  city  bankers  should 
rent  a  house  where  all  the  banks  should  meet.  This  house 
was  named  the  clearing  house. 

The  clearing  house  in  London  was  established  over  a 
century  ago.  It  was  first  used  as  a  place  where  the  clerks 
of  the  bankers  in  the  city  of  London  could  assemble  daily 
to  exchange  with  one  another  the  cheques  drawn  upon 
and  bills  payable  at  their  respective  houses.  The  clear- 
ing house  is  an  institution  founded,  not  merely  upon  the 
idea  of  saving  time  and  trouble  in  the  use  of  the  precious 
metals,  but  also  of  circulating  notes.  All  the  banks  and 
bankers  associated  as  members  of  a  clearing  house  are  for 
this  purpose,  as  it  were,  but  one  individual.  The  clearing 
house  of  London,  the  first  of  its  kind  in  the  history  of 
finance,  originated  among  the  bankers  of  that  city,  whose 
transactions  in  the  cheques,  bills,  and  drafts  drawn  upon 
each  other  became  so  large  as  to  call  for  the  daily  and 
even  hourly  use  of  vast  sums  in  bank  notes  by  all  of  them. 
Appreciating  how  readily  the  debits  and  credits  respect- 
ively due  or  held  by  them  might  be  set  off,  the  one  against 
the  other,  they  formed  the  clearing  house,  where  up  to  4 
o'clock  each  day  all  drafts,  bills,  etc.,  drawn  upon  each 
individual  member  were  taken.  The  system  of  the  Lon- 
don clearing  house  has  recently  been  much  extended  and 
improved,  and  all  balances  are  settled  by  cheques  drawn 


BANK    OF    ENGLAND.  209 

upon  the  Bank  of  England— no  bank  notes  being  required 
at  all. 

Before  the  clearing  house  existed,  each  banker  had  to 
send  a  clerk  to  the  places  of  business  of  all  the  other 
bankers  in  London  to  collect  the  sums  payable  to  them  in 
respect  of  cheques  and  bills;  and  it  is  obvious  that  much 
time  was  consumed  by  this  process,  which  involved  also 
the  use  of  an  unnecessary  quantity  of  money  and  corres- 
ponding risks  of  safe  carriage.  In  1775,  the  common 
centre  of  exchange  was  agreed  upon.  Its  use  was  con- 
fined to  the  bankers,—  at  that  time  and  long  afterwards 
exclusively  private  bankers, —  doing  business  within  the 
city,  and  the  bankers  in  the  west  end  of  the  metropolis 
used  some  one  or  other  of  the  city  banks  as  their  agent  in 
clearing,  a  practice  which  still  continues.  When  the  joint- 
stock  banks  were  first  established,  the  jealousy  of  the 
existing  banks  was  powerful  enough  to  exclude  them 
altogether  from  the  use  of  the  clearing  house  ;  and  some 
years  elapsed  before  this  feeling  was  removed  so  as  to 
allow  them  to  be  admitted. 

At  first  the  clearing  house  was  simply  a  place  of 
meeting,  but  it  came  to  be  perceived  that  the  sorting  and 
distributing  of  cheques,  bills,  &c.,  could  be  more  expediti- 
ously conducted  by  the  appointment  of  two  or  three 
common  clerks  to  whom  each  banker's  clerk  could  give 
all  the  instruments  of  exchange  he  wished  to  collect,  and 
from  whom  he  could  receive  all  those  payable  at  his  own 
house.  The  payment  of  the  balance  settled  the  transac- 
tion, and  an  analysis  of  the  statistics  of  the  clearinghouse, 
as  far  back  as  1856,  shows  that  the  amount  of  cash  that 
passed  was  often  less  than  4  per  cent,  of  the  total  sums 


210  HISTORY    OF    THE 

cleared.  Latterly,  however,  the  arrangements  of  the 
clearing  house  have  been  further  perfected,  so  that  neither 
notes  nor  coin  arc  now  required.  The  clearing  house,  as 
well  as  each  banker  using  it,  has  an  account  at  the  Bank 
of  England  ;  and  the  balances  due  at  the  close  of  each 
day's  transactions  are  settled  by  transfers  from  one 
account  to  another  at  the  bank. 

The  use  of  the  clearing  house  was  still  further 
extended  in  1858,  so  as  to  include  the  settlement  of 
exchanges  between  the  country  bankers  of  England. 
Before  that  time  each  country  banker  receiving  cheques 
on  other  country  bankers  sent  them  to  those  other  bank- 
ers by  post  (supposing  they  were  not  carrying  on  business 
in  the  same  place),  and  requested  that  the  amount  should 
be  paid  by  the  London  agent  of  the  banker  on  whom  the 
cheques  were  drawn  to  the  London  agent  remitting  them. 
Cheques  were  thus  collected  by  correspondence,  and  each 
remittance  involved  a  separate  payment  in  London.  In 
1858,  it  was  proposed  to  set  up  a  country  clearing  house 
in  London  ;  but  it  was  suggested  by  Sir  John  Lubbock 
that  the  existing  establishment  could  accompHsh  what 
was  desired,  and  this  was  eventually  done.  A  country 
banker  now  sends  cheques  on  other  country  banks  to  his 
London  correspondent,  who  exchanges  them  at  the  clear- 
ing house  with  the  correspondents  of  the  bankers  on 
whom  they  are  drawn.  It  will  be  easily  understood  that 
an  extraordinary  economy  in  the  use  of  coin  has  resulted 
from  these  arrangements.  Statistics  have  been  given, 
.showing  that  out  of  the  sum  of  a  million  dollars  paid  into 
a  certain  bank,  only  ^^4,500  was  in  bank-notes,  and  £6,210 
of  coin.  In  1868,  the  weekly  average  clearance  of  the 
London  clearing  house  was  about  £6$, 197,0"/^. 


BANK    OF    ENGLAND.  211 

In  1873,  the  average  weekly  clearance  was  £i  16,254,- 
717.  In  18S7,  the  average  weekly  clearance  was  £^7Sr 
758,000.  Total  clearance  of  the  London  clearing  house 
for  1887  was  i;6,o77,097,ooo. 

The  American  clearing  house  is  founded  upon  the 
English  system  in  general,  although  the  detail  work 
is  somewhat  different. 

The  New  York  clearing  house  is  a  building,  or 
rather,  nine  series  of  connected  rooms  in  a  building,  in 
which  each  of  a  certain  number  of  banks  daily  delivers  to 
every  other  bank,  sustaining  associated  relations  with  it, 
all  the  bills,  drafts,  and  cheques  drawn  upon  or  payable 
at  that  bank  in  the  course  of  the  preceding  day.  It  also 
receives  from  every  other  bank  all  the  drafts  and  cheques 
drawn  upon  it,  together  with  all  the  bills  payable  by  or  at 
it.  Sometirnes  the  difference  between  the  sums  total  is 
in  its  favor,  in  which  case  it  receives  through  its  messen- 
ger the  balance  due.  At  other  times,  the  difference  is 
against  it,  and  must  be  promptly  liquidated  by  cash  or  its 
authorized  representatives.  This  entire  process  is  desig- 
nated by  the  expressive  term  clearing,  because  it  clears 
off  all  pecuniary  obligations  due  from,  and  claims  of,  all 
connected  fiscal  institutions  upon  each  other. 

We  are  indebted  to  '*  The  Office  "  for  the  following 
description  of  the  New  York  clearing  house :  The 
scene  in  the  clearing  room  during  business  hours  is  a  busy 
and  pleasing  one.  The  arrangement  of  the  working  room 
consists  in  three  rows  of  double  desks,  each  desk  num- 
bered, and  bearing  on  a  silver  plate  in  front  the  name  of 
the  bank  to  whose  use  it  is  appropriated.  Elegant,  pol- 
ished, furnished  with  seats,  drawers,  and  other  conveni- 


212  HISTORV    OF   THE 

ences  for  the  clerks,  these  desks  arc  separated  from  each 
other  by  wire  guards,  and  stretch  from  one  end  of  the 
room  to  the  other.  Two  high  wire  railings,  each  with  a 
row  of  benches,  and  providing  for  transit  by  opening  in 
the  middle,  separate  each  line  of  desks  from  its  neighbor. 
The  design  of  this  arrangement  is  obvious  enough,  as 
the  clerks  from  member  banks  pour  in.  Young,  middle- 
aged,  and  old,  sprightly  and  sedate,  dudes  and  doctors,  all 
on  serious  thought  intent.  Their  business  demands  alert- 
ness, care,  efficiency.  Some  are  settling,  others  delivery 
clerks. 

Upon  entering  the  room,  every  settling  clerk  lays 
down  upon  the  table  a  credit  ticket,  of  which  a  sample  is 
given  herewith : — 


No.  27.  NEW  YORK  CLEARING  HOUSE, 

November  1st,  1888. 

Debit , National  Bank,  Amount  received  $957,853.13 

Credit "  brought  $2,001,319.27 

$ Debit  balance  due  Clearing-house 

Credit  balance  due National  Bank,  $1,043,466.14 

Thomas  Rogers, 

Settling  Clerk. 


SPECIMEN  CREDIT  TICKET. 

This  credit  ticket  shows  the  amount  of  exchanges  sent 
by  his  employers.  The  settling  clerk  then  seats  himself  at 
the  compartment  bearing  the  number  and  name  of  his 
bank,  while  the  delivery  clerk  of  the  same  bank  assumes  a 
standing  position  opposite  to  him. 

Precisely  at  lo  A.  M.,  two  taps  of  a  gong  announce 
everything   ready   for   business.       Another  tap   and  the 


HANK    OF    ENGLAND.  213 

financial  procession  begins  its  march.  Delivery  clerks, 
exchanges  arranged  in  box  or  on  arm,  each  deposits  a 
brown  manila  envelope  containing  checks,  drafts  and 
bills,  and  with  ticket  memorandum  of  amount  attached, 
on  the  counter  of  every  debtor  institution  in  consecutive 
order,  taking  written  acknowledgement  of  receipt  on  his 
"Delivery  Clerk's  Statement,"  and  thus  securing  vouchers 
for  the  due  distribution  of  his  exchanges,  until  the  round 
is  completed,  and  lie  finds  himself  exhausted  of  packages 
and  standing  at  the  point  of  departure. 

In  the  brief  space  of  ten  minutes  no  less  than  4,032 
have  been  effected  and  receipts  therefor  given  by  the 
settling  clerks,  who  enter  upon  their  settling  sheets  the 
amount  of  exchanges  brought  by  each  associated  bank 
opposite  its  printed  name.  The  Strasburg  clock  is  not 
more  measured  or  precise  in  its  movements,  nor  more 
unfailing  in  its  accuracy,  than  the  living  automaton,  the 
New  York  clearing  house.  In  fifteen  minutes  all,  or 
nearly  all,  the  delivery  clerks  have  disappeared. 

After  the  delivery  clerk  has  returned  to  his  bank,  the 
settling  clerk  remains  to  make  proof.  Adding  up  the 
several  items  of  receipt  from  the  creditor  banks,  he  in- 
scribes the  aggregate,  with  other  particulars,  upon  a  debit 
ticket,  which  is  collected  by  a  junior  clerk. 

A  proof  clerk  revises  everything.  He  occupies  a 
platform  with  the  manager  and  the  assistant  manager. 
While  the  proof  clerk  is  revising  the  reports,  the  settling 
clerk  is  busy  on  his  own  private  sheet.  Exchanges  re- 
ceived here  have  been  sent  to  the  bank,  but  the  tickets 
that  accompanied  them  on  presentation  at  the  clearing 
house  have  been  retained  at  his  desk.     By  means  of  these 


214  HISIDRV    OF    Till", 

he  corrects  original  entries,  if  so  be  that  he  has  fallen 
into  error  at  the  time  of  reception.  In  this  way  the  proof 
of  certainty  is  made  manifest.  Absolute  accuracy  is 
rarely  achieved  on  the  first  trial.  Life  is  too  full  of  dis- 
turbing influences  to  quietly  leave  every  scrivener  in  full 
control  of  his  powers.  Thought  may  dart  off  to  one  or 
more  of  a  hundred  objects,  instead  of  fixing  itself  exclu- 
sively on  the  settling  clerk's  statement.  Five  errors  are 
made  to-day.  Sometimes  the  number  rises  to  twenty-five. 
Shortly  after  10.30  the  manager  announces  a  collective 
difference  of  $16,068.98.  In  three  minutes  more  the  re- 
ceipt of  correction  tickets  from  fallible  accountants  re- 
duces it  to  $70  ;  in  six  minutes  to  $1.02,  and  in  seven  to 
$1.  The  discovery  of  that  insidious  dollar  now  engages 
the  anxious  energies  of  all  the  settling  clerks  and  of  the 
manager  and  his  staff.  In  such  a  hunt  no  occult  gifts  of 
mind-reading  are  of  any  avail.  The  game  eludes  detec- 
tion. "  Exchange  to  the  right  for  examination  of  foot- 
ings !"  is  the  next  order,  instantly  followed  by  transfer  of 
each  settling  sheet  to  the  dexter  neighbor,  who  runs  up 
the  arithmetical  columns.  But  the  cunning  dollar  is  not 
unearthed.  "Bank  of  New  York  and  Ninth  National 
lead  off  for  examination.  Both  amounts  with  care  !"  is 
the  following  command  from  the  chief.  Another  orderly 
evolution  ensues,  in  which  debits  and  credits  are  called 
off,  but  without  the  desired  result.  Fresh  tactics  are 
adopted,  and  the  caller  in  turn  plays  the  part  of  listener. 
Still  no  discovery.  At  11.05,  "Change  sheets  to  the 
left  1"  is  the  curt  instruction,  and  sheets  are  changed  to 
the  left.  "Ah!  there  it  is.  An  error  in  both  columns." 
The  fugitive  is  captured,  penned  up  in  correction  ticket, 


nANK    OK    F.NGLAND. 


215 


conveyed  in  triumph  to   the  proof  clerk,  deposited  in  the 
correction  column,  and  proof  is  once  more  proclaimed. 


No, 


Due  Clcari 
House. 


'*>     Banks. 


Rank  of  N.  Y.  Nat'l  B'k'g  Ass'n.     $378,681.89 

Maiiliattaii  Company ' 

Merchants'  National  I!ank  . . , 
Mechanics'  National  Bank. . 

Union  National  Bank 

Bank  of  America 

Bhosnix  National 

Kational  City  Bank 

Seaboard  Bank 

Sixth  National  Bank 

Western  National  Bank 


1 '20, 38 1.90 


2'.'6.506.0(j 
4L',  30 1.04 


Numbers,  names,  and  amount; 
from  8  to  85  omitted. 


S4,301,201.7'; 


,874.48 
,.330.05 
,144.40 
40,5.14 
057.77 
414.C: 
227  0(3 
227.  W) 
922.90 
321.40 


Banks.        Cr. 


?9, 


,857, 
)35, 
771, 
102. 
140, 
31)2, 
9:)4, 
0-30, 
599, 
71, 


,192.59 
548  10 
099.57 
470.73 
549.71 
131.81 
594.. 57 
741  83 
021.80 
731.43 


$124,993,869.38  $184,993,869.38 


Due    Banks.     No. 


$41,218.11 

47.. 555. 08 

9, 055.  .59 

37,491.94 


202,307.51 


16,410.03 


$4,301,201.77 


SPECIMEN  CLEARING  HOUSE  PROOF. 

In  an  hour  and  a  half — ordinarily  in  three-quarters  of 
an  hour' — from  the  time  of  beginning-,  unbroken  silence 
reigns  in  the  deserted  clearing    room.     What  has    been 
faultily   done  therein  is    soon   ascertained    at    the    fiscal 
institution,  whose  representative  has  subjected  its  treasury 
to  an  exaction  of  six  dollars  by  the  commission  of  a  double 
error.     Only  forty-five  minutes  are  allowed  for  effecting 
proof.     Errors  undetected  at  11.15  are  mulcted  by  a  double 
fine,  at  12  M.  by  one  quadrupled.     For  all  errors  on  the 
credit  side  of  the  settling-clerk's   statement,  whether  of 
entry  or  footing,  of  the  amounts  brought,  and  for  all   dis- 
crepancies    between     credit-entries,    check-tickets,    and 
exchange-slips,  a  fine  of  $3  each  is  imposed  ;    for  every 
error  in  making  entries  of  the  amounts  received,  $2  ;    for 
errors  in  the  tickets  reported  to  the  clearing  house,  and 
causing  differences  between  the  balances  and  the  aggre- 
gate,   $2    each  ;    errors    in    footing     receipts,    $1    (rarely 
inflicted)  ;     disorderly    conduct   or   non-compliance    with 


216 


HISTORY    OF   THE    BANK    OF    ENGLAND. 


managerial  mandates,  each  offence,  $2  ;  failure  to  be  punc- 
tually on  hand  with  statements  and  tickets  complete,  at 
the  morning  exchanges,  $2  ;  neglect  of  debtor  banks  to 
pay  their  balances  before  1.30  P.  M.,  $3  ;  and  for  each  mis- 
take in  the  delivery  or  receipt  of  exchanges,  $1.  Part  of 
the  painfully  interesting  correspondence  of  the  member 
banks  is  the  manager's  monthly  report  of  its  fines. 


Park  National  Bank. 
Settling  Clerk's  Statement. 


Nov.  1,  1888. 


No. 

lUnks. 

First    Debit. 

Additions. 

Total  Debit. 

Banks  Cr. 

No. 

1 

2 

Sixty-three 

other      bank 

accounts 

omitted. 

Bank   of  New   York 
NatM. Banking  Ass'n. 
Manhattan  Co 

$1,220,58989 
556,78100 

$100,087  22 

$1,320.87717 
556,78100 

$1,296,732  11 
693,829  25 

1 

Footings 

86,.3.37,229  10 
Credit  B 

$125,33.3   25 
alance 

$6,462,562.35 

221,152  00 

$6,241,410  35 

$6,241,410  35 

SPECIMEN  SETTLING  CLERKS'  STATEMENT. 


CHAPTER  XVIL 


BANK  OF  ENGLAND  AND  AMERICAN  BANK  NOTES. 

Description  of  a  Bank  of  England  Note — Hozv  Made — 
Peculiarity  of  Design — Number  of  Notes  Paid  Out 
Daily  and  Number  Cancelled — Hoiv  Burned  and  De- 
stroyed—  TJie  Accountant'' s  Library — Why  Notes  are 
Not  Reissued — The  Bank's  Printing  Office — Durabil- 
ity of  the  Notes — Cutting  Notes  in  Two  Pieces  Sent 
Through  the  LI  ails — Curiosities  in  the  Bank  Album 
— Barlozvs  Remarks  on  Bank  of  England  Notes — 
Antiquity  of  Bank  Notes — United  States  Currency 
— How  it  is  Printed,  Worn  Out  and  Destroyed — 
Workings  of  the  National  Bank  Redemption  Agency. 


Notwithstanding  Bank  of  England  notes  are  to  be 
found  in  all  parts  of  the  world,  there  are  undoubtedly 
many  people  who  have  never  seen  one,  and  following  will 
be  found  a  brief  description: — 

They  are  unlike  any  other  note  in  the  world.  In  size 
they  are  quite  large,  being  about  8}^  inches  in  length  by 
53^  in  width,  and  of  a  design  plain  and  unpretending  in 
the  highest  degree.  The  ink  used  in  printing  is  of  an 
intense  black,  upon  paper  of  remarkable  whiteness,  which 
is  also  extremely  crisp  and  tough. 


218  HISTORY    OF   THE 

The  Bank  of  England  note  is  printed  on  Irish  Hnen 
water-lined  paper,  plain  white  and  with  ragged  edges. 
The  paper  lacks  the  smooth,  oily  feeling  of  United  States 
currency,  and  the  plainness  of  the  lettering  and  the  entire 
absence  of  any  coloring  excepting  black  and  white  makes 
the  bill  in  appearance  easy  to  counterfeit. 

The  chief  object  in  the  manufacture  of  bank  notes  is 
to  render  forgery  impossible,  or  at  least  easy  of  detection. 
This  is  sought  to  be  effected  by  peculiarity  of  paper, 
design,  and  printing,  or  by  a  combination  of  these  means. 
The  main  reliance  in  the  case  of  the  notes  of  the  Bank  of 
England  has  been  on  mechanical  design  ;  the  writing,  the 
emblems,  and  the  ornaments  being  so  combined  as  to 
render  forgery  difficult.  The  ink,  too,  is  peculiar,  being 
the  blackest  and  the  most  indelible  of  inks.  As  a  further 
security  against  forgery,  a  self-registering  machine  is  used. 
Copperplate  printing  was  the  only  printing  in  use  for 
bank  notes  till  1837,  when  a  great  improvement  was 
made.  This  was  the  production  of  designs  by  the  mill 
and  die  by  mechanical  pressure.  The  pattern  is  engraved 
on  a  soft  steel  plate,  which  is  then  hardened,  to  transfer 
the  pattern  by  pressure  to  a  soft  steel  roller,  on  which,  of 
course,  the  pattern  is  produced  in  relief;  the  roller  or  mill 
is  then  hardened,  to  reproduce  the  pattern  in  the  plate 
from  which  the  printing  is  to  be  done;  and  thus  almost 
any  number  of  plates  for  all  common  purposes  can  easily 
be  produced.  No  Bank  of  England  notes  are  issued 
twice.  This  system  of  siderography  continued  in  use  for 
bank  note  printing  in  the  Bank  of  England  till  1855,  when 
electrotype  printing  was  introduced  by  Mr.  Smee,  with 
the  assistance  of  the  mechanical  officials  ;  and  since  that 


BANK    OF    ENGLAND.  219 

time  the  notes  of  the  Bank  of  England  have  been  all  pro- 
duced by  surface-printing  by  the  electrotype.  The  whole 
of  the  printing  of  the  bank  is  executed  within  its  walls. 
The  number  of  persons  employed  in  the  printing  depart- 
ment solely  on  the  production  of  notes  is  about  thirty.  In 
addition  to  these  there  are  nine  cashiers  and  sub-cashiers, 
who  are  highly  paid  ofificers  of  the  bank. 

Of  the  paper  required  in  the  manufacture  of  bank 
notes  about  15,000  reams  are  usually  supplied  to  the  bank 
yearly,  each  ream  of  500  pieces  of  paper  making  1,000 
notes,  the  paper  being  generally  kept  for  six  months 
before  it  is  taken  into  use.  The  paper  is  made  at  a  special 
manufactory  at  a  cost  of  about  £1  a  ream.  The  dies  from 
which  the  water-mark  is  made,  as  well  as  the  plates  used 
in  printing  the  notes,  are  all  manufactured  at  the  bank, 
where  also  the  notes  are  printed.  The  chief  cashier  regu- 
lates the  quantity  of  notes  required  to  be  printed,  and 
sends  orders  to  the  printing  office  for  the  number  he 
deems  requisite.  The  notes,  which  were  formerly  printed 
by  the  distinct  process,  are  now  completed  by  one  opera- 
tion. They  are  placed  in  the  hands  of  the  cashiers,  who 
count  them  over,  and  discharge  the  printer  of  all  further 
responsibility. 

The  Bank  of  England  never  re-issues  its  notes.  As 
they  come  in  they  are  laid  aside,  and  kept  five  years  and 
then  burned.  The  whole  number  is  not  destroyed  together, 
but  at  different  times,  and  as  many  are  burnt  as  corres- 
ponds with  the  new  notes  issued.  Notes  are  issued  to 
anyone  in  exchange  for  gold  or  other  notes.  The  notes 
are  generally  issued  to  bankers  in  bundles  containing  five 
hundred  each.      For  every  note   issued  an  entry  has  pre- 


220  HISTORY    OF    THE 

viously  been  made  recording  its  number  and  the  date  of 
issue.  This  entry  is  not  closed  until  the  note  is  returned 
to  the  bank  and  cancelled.  The  note  may  be  out  for 
years,  or  only  for  a  few  hours;  in  any  case,  the  book  in 
which  it  has  been  entered  is  kept  open  to  receive  the 
completion  of  its  history.  Ordinarily  about  50,000  notes 
are  paid  by  the  bank  in  a  day,  and  about  as  many  new 
ones  are  issued.  Those  which  have  been  in  circulation 
are  at  once  cancelled,  the  corner  bearing  the  signature  of 
the  cashier  being  torn  off,  and  the  words  indicating  the 
denomination  punched  out.  The  number  of  notes  thus 
cancelled  daily  varies  from  30,000  to  nearly  80,000,  and 
averages  about  50,000.  When  they  are  thus  cancelled, 
and  have  been  accounted  for  in  the  books,  they  are 
arranged  according  to  their  numbers  and  date  in  parcels 
of  from  300  to  1,500,  and  are  marked  in  such  a  way  with 
references  to  the  balance  sheets  that  a  clerk  can  readily 
ascertain  by  whom  and  when  each  was  paid  in.  The  par- 
cels are  then  deposited  in  the  accountant's  library,  and 
preserved  for  five  years,  at  the  end  of  which  they  are 
burned.  The  accountant's  library  usually  contains  nearly 
one  hundred  millions  of  these  cancelled  notes  stowed 
away  in  about  13,500  boxes,  any  one  of  which  can  be 
referred  to  in  four  or  five  minutes. 

While  this  system  is  very  expensive  it  is  not  deemed 
extravagant,  because  of  the  great  advantages  it  offers. 
The  most  notable  advantage  is  the  cleanly  condition  of 
the  circulation;  but  of  course  there  arc  other  advantages 
of  greater  import.  One  is  the  facility  with  which  the 
payment  of  any  note  is  traced,  and  also  the  saving  of  labor 
in  keeping  account  of  the  notes.     In  this  all  the  London 


BANK    OF    ENGLAND.  221 

bankers  share,  as  none  of  them  pay  out  any  but  new  notes. 
All  notes  received  by  them  in  the  course  of  their  business 
are  paid  in  to  their  accounts  at  the  Bank  of  England,  and 
they  draw  new  notes  for  their  requ-irements.  In  paying 
away  large  bundles  of  notes  they  are  able  to  keep  a 
record  of  their  distinctive  numbers  by  entering  only  the 
numbers  of  the  first  and  last  of  the  parcel.  The  plan  of 
re-issuing  notes  was  tried  by  the  bank  in  1838,  but  so 
much  inconvenience  was  caused  to  the  bankers  and  the 
public  that  it  was  abandoned.  It  seems  to  be  a  very 
wasteful  proceeding  that  a  quantity  of  newly  manufactured 
notes  issued  by  the  bank  in  the  forenoon,  and  returned  to 
the  bank  in  the  afternoon,  should  not  be  re-issued,  but 
stored  away  and  eventually  consigned  to  the  flames. 

No  notes  of  a  higher  denomination  than  ;!^iooo  are 
issued,  and,  as  the  bank's  printing  press  is  capable  of  pro- 
ducing these  at  the  rate  of  3000  an  hour,  this  part  of  its  work 
is  soon  accomplished.  There  are  several  other  presses  print- 
ing five  and  ten  pound  notes,  some  completing  with  one, 
and  those  of  older  date  with  two  impressions.  The  number 
and  date  of  each  note  are  printed  at  both  ends  of  it,  and 
as  the  separate  halves  are  thus  easily  identified,  it  is  com- 
mon in  England  to  remit  money  by  cutting  a  bank-note 
in  two  equal  pieces  and  transmitting  each  by  different 
mails  or  in  separate  envelopes.  This  is  done  as  a  guard 
against  theft  and  loss.  A  portion  of  the  bill  has  no  value. 
Not  the  smallest  scrap  of  paper  is  wasted,  and  if  a  note  is 
spoiled  in  the  printing,  it  has  to  be  accounted  for  no  less 
than  the  perfect  ones. 

While  for  beauty  of  design  the  notes  of  the  Bank  of 
England  are  inferior  to  those  of  the  United  States,  they 


222  HISTORY    OF     TliK 

are  securer  and  more  durable.  Brittle  to  the  touch  as  the 
paper  seems,  it  is  almost  as  strong  as  parchment,  and 
it  is  possible  to  hold  a  piece  no  larger  than  a  note  by  the 
edges  and  place  a  fifty-pound  weight  upon  it  without  tear- 
ing it.  Its  thinness  and  transparency  prevent  erasures 
and  other  illegal  alterations. 

In  an  album  kept  at  the  bank  the  various  counterfeits 
discovered  are  preserved,  and  the  best  of  these  is  one  exe- 
cuted by  a  Frenchman.  It  would  take  an  extremely 
experienced  eye  to  detect  any  fault  in  the  engraving,  but 
the  spuriousness  of  the  paper  is  visible  at  a  glance.  Most 
of  the  imitations  could  not  deceive  a  child,  and  the  poor- 
est one  shown  in  the  bank  is  a  hundred  pound  note 
which  was  sent  to  a  charitable  institution  inclosed  with  a 
benevolent  letter. 

The  penalty  for  forgery  is  so  heavy,  and  the  detect- 
ives of  the  Bank  of  England  are  so  vigilant,  that  few 
criminals  have  courage  enough  to  exercise  their  ingenuity 
in  forging  notes,  and  at  the  present  time  no  forged  notes 
are  known  to  be  in  circulation.  In  earlier  times,  when 
the  design  of  the  notes  was  ruder,  forgery  could  be  at- 
tempted with  greater  impunity,  and  the  history  of  the 
bank,  like  all  old  and  large  financial  institutions,  contains 
many  instances  of  daring  and  brilliant  roguery. 

The  bank  album,  in  which  specimens  of  the  various 
counterfeits  discovered  are  preserved,  also  contains  some 
interesting  proofs  of  the  extraordinary  durability  of  the 
notes.  There  are  three  notes  for  twenty-five  pounds 
which  passed  through  the  Chicago  fire  and  were  sent  in 
for  redemption.  Though  they  are  burnt  to  a  crisp  black 
ash,  the  paper  is  scarcely  broken,  and  the  engraving  is  as 


BANK    OF    ENGLAND.  -  223 

clear  as  in  a  new  note.  There  are  also  five  five-pound 
notes  which  went  to  the  bottom  of  the  sea  in  the  unfor- 
tunate training  ship,  "  Eurydice,"  and  were  recovered  after 
six  months'  immersion.  They  are  not  even  frayed.  The 
paper  is  stained  a  light  brown,  and  that  is  the  only  effect 
their  long  exposure  to  salt  water  has  had.  In  a  small 
case,  covered  with  a  magnifying  glass,  are  a  few  charred 
fragments  of  paper,  for  which  the  bank  paid  ;({^  1,400. 
They  are  the  remains  of  several  notes  destroyed  in  a  fire, 
and  were  redeemed  at  their  full  value,  the  holders  being 
able  to  give  their  numbers  and  dates,  and  to  satisfy  the 
bank  that  they  had  actually  been  destroyed.  There  is 
another  note  in  the  album,  which  was  in  circulation  125 
years  before  it  was  returned  to  the  bank  for  payment.  As 
soon  as  a  note  is  returned,  even  though  it  has  been  out 
but  a  few  hours,  it  is  cancelled.  Very  often  a  note  issued 
in  the  morning  is  brought  back  to  the  bank  in  the  after- 
noon of  the  same  day  ;  but  on  an  average  a  five-pound 
note  is  out  about  eighty  days.  One  thing  the  notes  will 
not  endure.  They  will  hold  together  at  the  bottom  of 
the  sea,  and  come  out  of  a  furnace  intact,  but  they  will 
not  outlast  the  scrubbing,  the  bleaching  and  the  mangling 
of  the  laundry, 

A  Bank  of  England  note  is  the  safest  piece  of  paper 
in  the  world,  and,  under  any  circumstances,  the  bank 
could  pay  every  one  in  circulation  without  touching  a  shil- 
ling of  its  capital.  The  great  object  of  the  charter  of 
1844  was  to  secure  at  all  times  and  under  every  possible 
contingency  the  conversion  of  every  bank  note  into  gold 
whenever  presented  for  payment,  and  that  object  has 
been  completely  attained.     The  effect  has  been  to  accu- 


224  HISTORY    OF   THE 

mulate  much  more  gold  than  would  have  been  necessary- 
had  the  interests  of  the  shareholders  alone  been  con- 
sidered ;  and  while  this  stock  of  bullion,  bearing  no  in- 
terest, and  held  only  for  the  integrity  of  the  bank  note,  is 
a  drawback  from  one  point  of  view,  the  enormous  benefit 
which  the  country  derives  from  the  absolute  equality  of 
the  note  and  the  coin  far  outweighs  any  attendant  dis- 
advantage. 

The  following  curious  description  of  the  paper  used  in 
making  bank  notes  is  abridged  from  Barlow's  lecture  on 
"A  Bank  of  England  Note." 

"  The  color  of  the  paper  is  peculiar,  and  cannot  exactly 
be  imitated  by  a  forger,  except  at  great  expense.  The 
combined  thinness  and  strength  of  the  paper  is  also 
unique.  The  paper  is  made  in  pieces  large  enough  for 
two  notes  ;  each  note  before  it  is  sized  weighs  about 
eighteen  grains,  and  if  then  doubled  it  is  strong  enough 
to  suspend  a  weight  of  thirty-six  pounds  ;  with  the  addi- 
tion of  about  a  grain  of  size  it  will  suspend  fifty-six  pounds. 
The  texture  of  the  paper  is  also  peculiar;  it  has  a  crisp 
feel,  invariably  the  same,  and  such  that  bank  clerks  of 
experience  can  readily  detect  forgeries  by  this  test  alone." 

Those  who  suppose  that  bank  notes  are  a  modern 
invention  may  be  surprised  to  know  that  they  were  first 
issued  in  China  more  than  two  thousand  years  before 
Christ.  They  were  engraved  in  blue  ink  on  paper  made 
from  the  fibres  of  the  mulberry  tree,  and  had  on  them  this 
motto  :  "  Produce  all  you  can  ;  spend  with  economy." 
Besides  this  were  designs  similar  to  those  of  modern  notes, 
such  as  the  date  of  issue,  number  of  note,  signature  of  the 
oflficial  issuing  it,  and  also  a  notice  of  the  pains  and  penal- 


BANK    OF    ENGLAND.  -i-i-i 

ties  of  counterfeiting.  One  of  these  curiosities  is  pre- 
served in  the  Asiatic  Museum  at  St.  Petersburg,  and  bears 
the  date  equivalent  to  1399  B.  C. 

United  States  paper  currency  is  more  artistic  in  ap- 
pearance and  convenient  in  size  and  form  than  Bank  of 
England  notes. 

The  Bureau  of  Engraving  and  Printing,  at  Washing- 
ton, D.  C,  where  all  United  States  currency  is  manufac- 
tured, occupies  a  large  brick  building  built  expressly  for 
it,  at  a  cost  of  some  $300,000.  It  has  three  stories  and  a 
high  basement.  Here  250  plate  presses  a/e  worked  by  hand, 
and  over  500  men  and  women  employed  in  the  processes 
of  printing  sheets  of  bank  notes,  bonds  and  internal  rev- 
enue stamps.  Six  hundred  sheets  per  day  are  printed  on 
each  press,  and  after  each  impression  the  delicate  copper 
and  steel  plate  must  be  removed  from  the  press,  carefully 
wiped  dry,  polished  with  whiting,  inked  and  then  returned 
to  its  place  for  another  impression.  The  fibre  paper  must 
be  handled  expertly,  and  everything  about  the  work  done 
with  precision  and  care.  All  is  perfect  system  and  exact- 
ness here.  The  greenbacks  and  other  securities  issued  for 
the  government,  from  the  time  the  paper  is  manufactured 
until  the  finished  note  is  issued,  are  subjected  to  a  system 
of  registering  and  checking  at  every  step,  so  minute  and 
precise  that  the  chance  of  any  error  or  dishonesty  in  the 
handling  of  this  most  valuable  product  is  reduced  to  a 
minimum. 

The  sheets  before  being  wet  are  delivered  to  the 
plate  printers,  counted  and  charged  to  them,  and  again 
counted  in  the  presence  of  an  assistant,  who  certifies  to 
the  count.     Attached  to  the  machines  by  which  the  wet- 


226  HISTORY    OF   THE 

ting  is  done  are  registers  which  automatically  count  the 
sheets  a  third  time  as  they  pass  through.  Next  comes 
the  examining  division,  where,  after  the  fourth  count,  the 
sheets  are  dried  and  counted  for  the  fifth  time.  Experts 
then  examine  the  sheets,  and  those  which  are  pronounced 
perfect  go  into  the  hydraulic  press,  from  which  powerful 
machine  they  emerge  in  a  smooth  state  ready  for  print- 
ing. 

Any  sheets  spoiled  in  printing — too  light  or  too  dark, 
or  otherwise  imperfect — are  thrown  out  by  the  examiner, 
but  cannot  be  destroyed  until  after  passing  through  a 
regular  prescribed  course.  The  lettering  and  numbering 
divisions,  and  the  engraving  division,  are  interesting  also. 
Visitors  are  permitted  to  inspect  all  the  divisions  of  the 
bureau,  and  a  guide  is  provided  to  conduct  all  who  apply 
on  a  "tour"  of  the  rooms.  Of  the  500  or  600  persons 
employed,  a  large  majority  are  ladies,  and  some  of  the 
most  difficult  and  responsible  work  is  performed  by  lady 
experts.  The  bureau  turns  out  an  average  of  $100,000  in 
notes  printed  daily.  The  great  chilled  iron  and  steel 
vaults  of  the  treasury  are  objects  of  much  interest,  but 
only  certain  ones  can  be  entered  by  outsiders,  and  these 
only  on  a  permit  from  the  treasurer. 

When  the  national  bank  notes  have  tramped  about 
the  country  until  they  have  become  ragged  and  vagabond, 
and  have  reached  the  lowest  depths  of  degradation,  they 
are  bundled  up  and  sent  to  the  Treasury  Department  for 
redemption.  Many  millions  of  these  vagrants  are  received 
at  the  department  each  year.  They  have  to  pass  in  re- 
view through  the  National  Bank  Redemption  Agency, 
where  those  that  are  utterly  depraved  and  good  for  noth- 


BANK    OF    ENGLAND.  227 

ing  are  sentenced  to  be  chewed  up,  and  those  which  have 
got  in  through  the  force  of  association,  but  are  still  not  so 
far  gone  that  some  good  may  not  be  got  out  of  them,  are 
sent  back  into  the  service.     In  the  place  of  those  that  are 
'  condemned  nice,  new  notes,  crisp  and  clean,  are  sent  out. 
The  experience  of  these  notes  is  varied,  and  in  some  cases 
very  novel  and  interesting,  but  their  tale  is  told  only  by 
their  ragged  and  dirty  appearance  when  they  get  back  to 
the  department.     The  average  length  of  time  that  a  new 
note  can  keep  up  a  respectable  appearance  is  about  three 
years.     Some  have  been  found  at  the  end  of  twenty  years 
to  be  as  crisp  as  on  the  day  of  their  issue,  but  these  are 
exceptional  cases,  where  they  have  fallen  into  the  hands 
of  people  who  made  pets  of  them,  and  carefully  guarded 
them  from  rough  usage.     The   wandering  note  soon  be- 
comes a  tramp.     It  rapidly  goes  to  pieces  if  it  starts  out 
for  the  west,  stopping  along  at  the  crossroad  inns,  or  if  it 
frequents  drinking  saloons  and  falls  in  with  low  company. 
Bad  habits  tell  on  a  bank  note  very  quickly.     It  is  in  hard 
luck  when  it  falls  in  with  a  bloody-fingered  butcher.  Some 
have  been  known  to  become  good  for  nothing  under  such 
circumstances  in  a  few  weeks.     They  are  subject,  too,  to 
all  sorts  of  misfortune  by  fire  and  water. 

Many  thousand  get  burned  up.  Then  their  charred 
and  blackened  remains  are  sent  to  the  treasury  for  redemp- 
tion. One  lady  in  the  comptroller's  office  in  this  case  has 
charge  of  them,  and  they  are  sent  to  her  for  identification 
before  they  can  be  redeemed.  She  is  said  to  be  very  ex- 
pert, seldom  failing  to  identify  a  note,  giving  its  proper 
name,  date  and  classification,  no  matter  how  badly  burned 
it  is.     Sometimes  packages  of  several  hundred,  done  up  to 


228  HISTORY    OF   THE 

be  expressed,  are  sent  in  all  stuck  together,  and  burned 
clear  through  to  a  black  crispy  mass.  She  then  separates 
them  one  by  one  with  a  very  thin  bladed  knife,  and  places 
the  charred  remains  of  each  one  separately  on  a  glass 
slab  and  examines  it  very  carefully  with  a  magnifying 
glass.  She  is  familiar  with  all  peculiarities  of  the  issues  of 
the  various  banks,  and  the  note  must  be  reduced  almost 
to  ashes  to  be  beyond  her  recognition,  though  to  an 
experienced  eye  it  might  not  be  distinguished  from  a 
piece  of  grocer's  paper  which  had  gone  through  the  fire. 

All  these  notes  otherwise  mutilated  go  directly  to  the 
Redemption  Agency.  The  degree  of  expert  efficiency 
displayed  there  is  something  remarkable.  This  branch  of 
the  service  was  organized  by  General  Spinner.  Prior  to 
that  there  was  no  systematic  redemption  of  the  paper  cur- 
rency as  it  became  too  worn  for  circulation,  and  a  good 
many  ragamuffin  notes  were  wandering  about  the 
country. 

The  counting-in  and  assorting  of  the  notes  requires 
great  care,  and  it  is  only  after  long  experience  that  it  can 
be  done  rapidly.  There  is  an  average  of  about  i5O,0(X),- 
ooo  notes  per  year  handled,  and  they  have  to  be  counted 
about  five  hundred  times,  if  there  is  no  hitch  in  the  count, 
and  oftcner  if  any  mistakes  are  made. 

The  force  can  handle  just  half  a  million  notes  each 
day.  This  is  very  expert  counting.  The  notes,  when 
they  come  to  be  judged,  have  first  to  be  "  counted-in." 
This  requires  the  "counters-in"  to  go  over  them  twice, 
and  they  must  make  no  mistake  and  pass  no  counterfeit, 
or  the  loss  thus  caused  will  be  deducted  from  their 
salaries.     To  do  this  requires  constant  attention  and  is  a 


BANK    OF    ENGLAND.  229 

great  strain  on  the  nerves,  as  each  note  has  to  be  scruti- 
nized very  closely  to  see  that  it  is  not  counterfeit,  and  the 
"counter-in"  must  know  the  name  of  every  bank  that  has 
a  counterfeit  upon  it,  and  have  in  his  mind  a  full  descrip- 
tion of  the  false  note,  so  as  to  be  able  to  detect  it  at  sight. 
The  superintendent  says  counterfeit  notes  are  thrown  out 
by  these  experts  without  hesitation  every  time  they  come 
to  them.  They  have  a  line  of  notes  passing  before  their 
eyes  at  the  time,  and  any  flaw  or  defect  they  notice  on 
the  instant.  So  familiar  is  everyone  with  the  money  of 
the  United  States  that  an  extended  description  would  not 
be  particularly  interesting  or  instructive. 


CHAPTER    XVIII. 


ISSUE  DEPARTMENT-NO  INTEREST  ON  DEPOSITS. 

Preparing  Bank  Notes  for  Use— How  Notes  Get  into  Cir- 
culation— Exchanging  Notes  for  Gold — Inland  and 
Foreign  Withdrawals — The  Bullion  Office — Bank  of 
England  Purchasing  Gold— Gold  Weighing  Room — 
Mechanical  Accuracy  and  Dispatch — No  Interest 
Allowed  on  Deposits — An  Ex-Governor  Defends  the 
Policy  of  the  Bank — A  Tradition. 


As  PREVIOUSLY  stated,  the  paper  upon  which  Bank 
of  England  notes  are  printed  is  specially  made  for  the 
bank,  and  the  greatest  care  is  taken  to  produce  a  paper 
that  is  difficult  to  counterfeit.  As  fast  as  the  paper  is 
printed  it  is  sent  to  the  bank  and  placed  under  the  care 
of  the  chief  cashier.  The  notes  are  then  printed  at  the 
bank  and  kept  in  the  banking  department  until  wanted  in 
the  Issue  Department.  Each  note  bears  the  date  of  its 
printing,  together  with  a  distinctive  number. 

One  of  the  great  divisions  of  the  functions  of  the 
Bank  of  England  is  the  Issue  Department.  This  opera- 
tion is  carried  on  under  the  immediate  supervision  of  the 
chief  cashier,  who  is  responsible  that  the  conditions 
imposed  upon  the  bank  by  the  Act  of  1844  arc  strictly 


BANK    OF    ENGLAND.  231 

complied  with.  The  first  requisite  of  a  practical  nature 
is  the  preparation  of  the  notes  themselves,  which  is  fully 
described  in  Chapter  XVII. 

When  the  chief  cashier  from  time  to  time  orders  the 
issue  of  fresh  bank  notes,  he  gives  the  chief  accountant 
notice  thereof,  specifying  how  many  are  to  be  prepared, 
and  the  dates  they  will  respectively  bear.  The  account- 
ant immediately  opens  a  general  credit  for  the  amount  of 
the  new  creation  of  notes,  and  at  the  same  time  prepares 
books  in  his  own  department,  called  ledgers,  numbered 
and  dated  to  correspond  with  the  notes  in  question,  in 
which  a  separate  credit  is  opened  for  every  individual 
note  made. 

The  notes  being  now  ready  for  use  are  drawn  from 
the  treasury,  as  occasion  may  require,  by  the  chief  cashier, 
whether  for  London  or  branch  bank  issues,  and  passed 
into  the  Issue  Department,  from  which  they  are  issued  to 
the  public,  to  the  bankers,  to  the  banking  offices  of  the 
house,  and  to  the  respective  branches,  so  that  this  depart- 
ment is  cognizant  of,  and  virtually  responsible  for,  the 
issue  of  all  the  notes  circulated  by  the  Bank  of  England. 
There  are  two  principal  ways  in  which  notes  get  into  cir- 
culation. In  the  first  place,  notes  are  issued  to  anyone  in 
exchange  for  gold  bullion;  and,  secondly,  any  person  hav- 
ing a  drawing  account  at  the  bank  has  only  to  draw  a 
cheque,  and  on  its  presentation  he  will  be  paid  the  whole 
or  any  part  of  the  amount  on  his  account  in  notes,  or 
notes  and  gold,  as  he  may  prefer.  Every  note  issued  is 
entered  by  its  number  and  date  in  the  books  of  the  Issue 
Department,  and  these  books  being  all  duly  balanced  at 
the  close  of  each  day,  all  the  remaining  notes  (including 


232  HISTORY    OF    THE 

those  considered  as  broken  cash,  in  the  hands  of  the  pay- 
clerks,  and  deposited  each  night  in  the  treasury)  are  re- 
turned every  evening  to  the  cashier,  whose  account  will 
then  show  the  number  of  notes  issued  in  the  course  of  the 
day.  Simultaneously  with  this  process,  another  will  have 
been  in  operation  through  the  day,  and  in  the  same  de- 
partment, viz.,  the  exchange  of  notes  for  gold.  The  bank 
note  being  a  promise  to  pay  the  amount  thereof  in  gold 
on  demand,  anyone  bringing  notes  to  the  bank  is  entitled 
to  make  his  demand,  and  during  each  day  large  amounts 
of  gold  are  given  in  exchange  for  notes.  The  cashier's 
daily  account,  therefore,  will  show  the  number  of  notes 
received  back  again  by  the  bank  in  this  way,  as  well  as  all 
paid  in  to  account  by  parties  having  drawing  accounts  at 
the  bank.  A  similar  account  in  abstract  of  all  notes  ex- 
changed for  gold,  or  gold  exchanged  for  notes,  and  of 
notes  paid  or  received  in  the  banking  offices,  is  kept  by 
the  accountant  of  the  bank,  whose  accounts  must  agree 
daily  with  those  of  the  cashier. 

It  is  evident  that  the  amount  of  bank  notes  issued 
varies  in  exact  proportion  to  the  amount  of  gold  in  the 
Issue  Department,  the  issue  against  the  government  debt 
and  other  securities  being  invariable.  Roughly  speaking, 
the  contraction  or  expansion  of  tlie  circulation  indicates 
a  corresponding  curtailment  or  increase  in  commercial 
facilities  or  requirements.  Hence  the  Issue  Department 
return  becomes  an  important  guide  to  the  operations  of 
bankers,  brokers,  and  financial  firms,  by  whom  it  is  care- 
fully \\atched,  since  the  increase  or  diminution  of  the 
stock  of  gold  may  be  said  respectively  to  be  a  signal  of 
safety  or  danger.     The   receipts  or  withdrawals  of  gold 


BANK    OF    r.N'GLAND.  233 

in  any  large  quantity  by  and  from  the  bank  arc  of  two 
kinds,  inland  and  foreign.  The  former  for  the  most  part 
occurs  at  certain  regular  periods  of  the  year,  such  as  the 
harvest  season,  Scotch  "term-time,"  etc.  They  exercise 
but  a  very  modified  and  temporary  influence  on  the  money 
market,  for  the  laws  by  which  they  are  governed  are  fairly 
understood  and  recognized,  and  the  amount  of  gold  act- 
ually in  the  kingdom  remains  unaltered. 

It  has  already  been  mentioned  that  as  the  notes  are 
from  time  to  time  numbered  and  dated  for  issue,  the 
accountant  is  made  acquainted  therewith,  and  that  he  pre- 
pares ledgers  containing  a  separate  credit  for  every  note 
issued.  When  the  notes  are  returned  again  to  the  bank 
for  payment,  these  individual  credits  are  cancelled  by  the 
date  of  the  return  of  each  respective  note  being  posted  in 
the  ledger  against  the  number  corresponding  with  that 
borne  by  the  note  itself.  Thus  it  will  be  seen  that  the 
amount  of  the  credits  closed,  or,  in  other  words,  the  num- 
ber of  notes  paid  in,  being  deducted  from  the  circulation 
account,  Avill  show  at  the  close  of  each  day  the  actual 
number  and  amount  of  the  notes  remaining  in  circulation. 

Another  important  part  of  the  bank,  directly  con- 
nected with  the  Issue  Department,  is  the  bullion  office. 
As  the  Bank  of  England  is  bound  by  law  to  buy  any 
amount  of  gold  at  the  rate  of  ^"3  17s.  gd.  per  ounce  of 
standard  gold,  or,  in  other  words,  to  give  its  notes  or 
acknowledgement  at  that  rate,  it  is  necessary  to  have  a 
department  where  the  bullion  so  acquired  may  be  placed 
in  safe  custody.  The  obligation  on  the  bank  to  buy  gold 
or  bullion  at  the  above  mentioned  rate  per  ounce  stand- 
ard is  a  convenience  to  the  public  who  require  an  ex- 


234  HISTORY    OF   THE 

changeable  commodity  such  as  coin,  instead  of  gold  as 
imported,  in  the  shape  of  bullion— bullion  meaning  gold 
or  silver  in  any  other  shape  or  form  than  coin.  If  an  im- 
porter of  gold  wishes  to  sell,  that  is,  to  obtain  gold  coin 
which  he  can  pay  away,  he  can  take  his  bullion  to  the 
mint,  and  for  every  ounce  of  gold  of  twenty-two  carats 
fine,  or  twenty-two  parts  out  of  twenty-four  pure  gold,  he 
will  receive  gold  coin  at  the  rate  of  £l  lys.  lo^d.  per 
ounce  ;  but  to  obtain  this  he  must  send  the  gold  to  the 
mint,  and  wait  some  weeks  for  the  coin.  It  is,  therefore, 
found  more  advantageous  to  the  seller  to  take  the  gold  to 
the  bank  and  receive  \\d.  less  per  ounce  ;  this  operation 
being  effected  without  any  loss  to  the  bank,  which  sells 
again  the  same  bullion  at  the  rate  of  ^3  ijs.  io\d.  per 
ounce,  or  obtains  sovereigns  from  the  mint.  The  bank 
only  sends  its  bullion  to  the  mint  as  it  may  be  in  want  of 
gold  coin.  Frequently  it  sells  foreign  gold  coin  at  a  small 
profit,  as  it  may  be  worth  more  to  an  exporter — for  in- 
stance, to  Russia — to  have  Russian  gold  coin  than  either 
bar  gold  or  sovereigns  ;  but,  in  all  cases,  the  general  rule 
of  the  bank  is  to  buy  foreign  gold  coin  only  at  such  a 
price  as  will  render  it  equivalent  to  gold  bars — that  is  to 
say,  at  a  rate  for  which,  without  loss,  it  can  always  con- 
vert such  coin  into  bars  at  £t,  \ys.  ^d.  per  ounce  stand- 
ard, which  again  can  be  converted  into  British  gold  coin 
at  the  mint. 

The  bullion  office  at  the  bank  is  also  made  use  of  as 
a  depot  orwarenouse  for  gold  or  silver,  or  other  such  valu- 
able commodities — diamonds  or  precious  stones,  for  in- 
stance ;  and  importers  are  allowed  to  deposit  and  retire 
their  goods  free  of  charge,  the  bank  being  remunerated 


r.ANK    OF    EXGLAND.  235 

by  small  payments  for  the  use  of  the  bank's  scales  and 
packing  bullion  for  export. 

All  gold  paid  into  the  bank  is  weighed  in  a  room 
called  the  "  Gold  Weighing  Room."  In  this  room  there 
are  sixteen  machines  (the  invention  of  Mr.  Cotton,  a 
former  governor  of  the  bank)  constantly  at  work.  It  is 
merely  necessary  to  keep  them  fed  with  sovereigns  and 
half-sovereigns,  and  the  whole  process  of  weighing  and 
dividing  the  light  from  the  full-weight  coins  is  performed 
automatically  by  the  machines,  at  the  rate  of  about  2,000 
an  hour  each,  and  with  an  accuracy  and  precision  that 
could  not  possibly  be  attained  by  manual  labor.  In  this 
manner,  in  the  year  1885,  ^^25,087, 250  worth  of  gold  coin 
was  weighed  and  sorted,  and  the  number  of  individual 
pieces  amounted  to  27,272,760.  As  each  gold  coin  paid 
into  the  bank  is  very  accurately  weighed,  to  the  daily  av- 
erage of  about  89,125,  and  those  found  to  be  light  are  cut, 
the  current  weight  of  the  circulation  is  to  a  considerable 
extent  preserved. 

The  machines  are  kept  in  motion  by  an  atmospheric 
engine,  connected  with  the  steam  engine,  and  the  light 
coins  are  immediately  cut,  to  be  remelted. 

The  Bank  of  England  does  not  allow,  either  at  the 
head  office  in  London,  or  at  its  branches,  any  interest  on 
deposits,  and  many  plausible  reasons  have  been  advanced 
in  defence  of  this  rule.  Mr.  Wegeulin,  formerly  governor 
of  the  bank,  gave  the  views  of  the  managers  of  that  insti- 
tution on  interest  on  deposits  before  a  parliamentary  com- 
mittee in  1857. 

He  said  the  managers  of  the  Bank  of  England  have 
always  considered  that  the  "  proper  functions  of  a  banker 


23G  HISTORY    OF   TITE 

were  to  keep  the  spare  cash  of  his  customer,  such 
cash  as  his  customer  required  for  his  daily  expenditure, 
for  the  sudden  demands  of  his  business,  and  any  acci- 
dental accumulation  which  might  happen  before  the 
customer  had  occasion  to  invest  it.  That  is  contrasted 
with  the  system  pursued  by  the  joint-stock  banks.  The 
joint-stock  bank  invites  a  large  deposit  by  offering  a 
certain  rate  of  interest  for  the  deposit  ;  in  point  of 
fact,  the  joint-stock  bank  becomes  the  investor  of  the 
money  instead  of  the  customer.  The  customer  of  a  joint- 
stock  bank  docs  not  himself  invest  his  own  money,  but  he 
employs  the  joint-stock  bank  to  do  it,  taking  the  guaran- 
tee of  the  joint-stock  bank,  and  taking,  possibly,  a  lower 
rate  of  interest.  Now,  that  system,  if  applied  to  the  Bank 
of  England,  would  be  very  prejudicial  to  the  public  inter- 
ests. It  would,  in  the  first  place,  force  upon  the  Bank  of 
England  to  invest  its  reserves  much  more  closely  than  it 
does  now\  If  it  had  to  pay  interest  upon  its  deposits,  it 
could  only  do  so  by  investing  them  in  some  securities  that 
would  pay  a  higher  rate  of  interest  than  that  which  it 
pays.  Its  deposits  also  are  of  that  particular  character 
which  would  render  it  still  more  inexpedient  that  they 
should  be  closely  invested.  They  consist,  in  the  first 
place,  of  government  deposits,  which  rise  from  a  lov/  rate 
at  one  period  of  a  quarter  up  to  five  or  six  millions  higher 
at  another  period  of  a  quarter,  and  again  collapse  to  a  very 
low  rate  at  another  period.  Again,  the  private  deposits 
consist,  to  a  certain  extent,  of  the  deposits  of  the  bankers 
and  the  joint-stock  banks  of  London.  Those  deposits  are 
the  amounts  which  those  bankers  require  to  work  their 
own  business.  Consequently,  they  arc  not  deposits  which 
should  be  very  closely  invested  by  the  Bank  of  England." 


P.ANK    OF    KNfll.AND.  2-U 

A  former  officer  of  this  bank  says  that,  in  times  when 
there  is  a  great  accumulation  of  deposits  in  the  Bank  of 
England,  it  is  because  the  public  arc  not  able  at  those 
times  to  find  investments  to  their  mind  to  employ  those 
deposits  ;  and  consequently,  it  is  not  at  all  likely  that  the 
Bank  of  England,  if  that  is  the  case  with  the  public  gen- 
erally, will  be  able  to  find  investments  which  the  public 
themselves  have  not  been  able  to  do.  All  these  reasons 
combined  would  lead  one  to  think,  that  to  force  a  system 
upon  the  Bank  of  England  by  which  it  should  be  obliged 
to  employ  its  deposits  very  closely — much  more  closely 
than  it  does  at  present — would  be  not  only  prejudicial  and 
unsafe  as  regards  the  Bank  of  England,  but  would  be  pre- 
judicial to  the  public  interest. 

It  is,  however,  obvious  that  this  reasoning  is  quite 
inconlusive.  The  truth  is,  says  another  ex-governor,  that 
the  non-allowance  of  interest  is  a  tradition,  of  no  authority 
in  itself,  and  operating  injuriously  in  keeping  up  the  delu- 
sion that  the  banking  department  of  the  Bank  of  England 
is  an  institution  differing  essentially  in  the  character  of  its 
business  from  other  banks. 


Equivalent  of  British 

Money 

IN 

American 

Money. 

Dollars. 

Cents. 

Mills. 

to 

c 

en 

Dollars. 
Cents. 

Mills. 

IS 
V3 

Dollars. 

Cents. 

Mills. 

lA 

C 

o 

O         (U 

Q      U 

en 

c 
o 

O        (U 

Q    U 

1 

24.2 

7 

1  69  4 

13 

3.14.6 

1 

4  84 

15 

72  60 

2 

48.4 

8 

1.93.6 

14 

3.38.8 

2 

9  68 

20 

96  80 

3 

72.6 

9 

2.17  8 

15 

3.63.0 

3 

14  52 

25 

121  00 

4 

96.8 

10 

2.42.0 

16 

3.87.2 

4 

19  36 

30 

145  20 

5 

1.21.0 

11 

2.66.2 

18 

4.35.6 

5 

24  20 

35 

169  40 

6 

1.45.2 

12 

2.90.4 

20 

4.84.0 

10 

48  40 

50 

242  00 

CHAPTER    XIX. 


PRESENT  MANAGEMENT  AND  DESCRIPTION  OF  THE  BANK  OF  ENGLAND. 

How  the  Bank  is  Officered  and  Managed — Qualification 
and  Election  of  Officers — Salaries —  Temire  of  Office 
— Court  of  Directors — Bank  Committees — Explana- 
tion of  their  Duties — Division  of  the  Clerical  Force — 
Working  in  Harmony —  Tlie  Secretary  and  his  Duties 
—  Total  Number  of  Employees  in  the  Bajik —  The  Enor- 
mous  Salary  List  —  Convenieiices  and  Societies  for 
Clerks — Library,  Reading  and  Dining  Room — Lnsur- 
ance  and  Guarantee  Society — Medical  Attendance — 
How  Clerks  are  Appointed — Names  of  the  Various 
Departments — Description  of  the  Bajik — Its  Exterior 
and  Literior — Number  of  Acres  the  Bank  Occupies — 
Statue  in  Bank,  with  Inscription  Thereon — How  the 
Bank  is  Guarded — Officers  who  Reside  in  the  Bank — 
Emitient  Services  Rendered  by  the  Bank. 


The  management  of  the  bank  is  entirely  in  the  hands 
of  the  proprietors  of  the  bank  stock,  and  absolutely 
without  any  sort  of  interference  or  control  on  the 
part  of  the  government.  The  direction  of  its  affairs  is 
committed  to  a  committee  composed  of  the  governor,  the 
deputy  governor,   and   twenty-four   directors.     Eight   of 


BANK   OF    ENGLAND.  239 

these  directors  retire  annually,  by  rotation,  and  arc  all  in- 
variably  re-elected,  unless  they  wish  to   retire.     In  that 
case  the  court  of  directors  submits  to  the  proprietors  the 
name  or  names  of  any  persons  whom  it  may  be  thought 
desirable  to  have  upon  the  committee.     The  qualification 
for  a  director  is  the  holding  of  £2,000  stock,  and  as  the 
position  is  very  much  coveted,  the  names  submitted  are 
usually  members  of  the  very  first  firms  in  London.     The 
governor  and  the  deputy  governor  are  also  elected  by  the 
proprietors,  although  they  are  first  selected  by  the  direct- 
ors from  among  themselves,  and  their  names  submitted  to 
the  general  court  at  the  annual  meeting.     The  qualifica- 
tion for  the  position  of  governor  is  the  holding  of  ;!^4,ooo 
stock,  whilst  the  deputy  governor  must  hold  ;^3,ooo.    The 
qualification  of  a  proprietor  for  voting  is  the  holding  of 
^500  of  stock  in  his  own  right.     The  governor  and  the 
deputy  governor  are  elected  for  one  year  only,  but  as  they 
are  invariably  re-elected  at  the  close  of  the  first  year,  they 
hold  office  for  two  years.     At  the  expiration  of  that  time, 
the  governor  returns  upon  the  board  of  directors,  and  the 
deputy  governor  invariably  succeeds  and  is  elected  gov- 
ernor, and  a  new  deputy  is  chosen.     The  governor  and 
deputy  governor  each  receive    ^1,000   per   annum,    and 
every  director  receives  iJ"500  per  annum.     From  the  caVe- 
ful  manner  in  which  the  directors  are  selected,  it  follows 
that  the  management  of  the  bank,  which  really  involves 
the  most  important  interests  of  the   whole  commercial 
community,  is  conducted  by  men  who  are  in  touch  with 
every  movement  of  commerce  and  finance  in  the  country, 
and  in  every  quarter  of  the  world. 

Matters  of  daily  routine,  such  as  questions    relating 


240  HISTORY    OF   THE 

to  discipline,  are  generally  referred,  in  the  first  instance,  to 
the  deputy  governor ;  while  all  communications  between 
the  government  and  the  bank,  and  all  matters  affecting 
the  principle  of  management,  are  referred,  usually,  direct 
to  the  governor,  who  is  the  final  appeal  in  all  cases  requir- 
ing decision,  which  the  heads  of  departments  may  not 
consider  themselves  justified  in  settling. 

The  directors  are  in  like  manner  elected  annually  by 
the  proprietors  ;  but  although  the  stockholders  in  this 
way  have  the  power  of  turning  out  any  director — that  is, 
of  not  re-electing  him — yet,  on  vacancies  occurring,  it  has 
been  the  invariable  rule  to  leave  the  selection  of  new  di- 
rectors to  the  court  of  directors,  which  include  all  of  the 
directors  of  the  bank,  and  the  governor  and  deputy  gov- 
ernor, who  are  considered  more  competent  to  choose  effi- 
cient members  for  the  board,  and  who,  from  their  posi- 
tion in  business  and  general  character,  are  best  calculated 
to  promote  the  important  interests  and  general  welfare  of 
the  Bank  of  England. 

Beyond  the  status  which  their  position  gives  them, 
the  governor  and  deputy  governor  derive  no  bene- 
fit from  their  office,  while  they  tax  themselves  most  liber- 
ally by  their  contributions  towards  the  welfare  of  their 
clerks.  They  remain  in  office  for  two  years  only,  and  this 
short  tenure  of  office  is,  with  considerable  reason,  thought 
to  be  detrimental  to  the  efficient  and  consistent  adminis- 
tration of  the  functions  of  government.  A  governor,  let 
us  say,  is  an  enlightened  financier ;  for  two  years  his 
policy  is  paramount  ;  but  his  successor  then  comes,  and, 
perhaps,  reverses  everything,  and  the  onus  of  the  change, 
so  far  as  the  bank  customers  are  concerned,  is  left  to  be 


BANK    OF    ENGLAND.  241 

borne  by  the  permanent  officers  of  the  bank,  who  have, 
perhaps,  never  been  consulted  in  the  matter,  or  whose 
opinions,  based  on  the  experience  of  many  years,  may  be 
ruthlessly  ignored.  The  two  years'  system  undoubtedly 
has  its  advantages  in  the  constant  introduction  of  new 
blood  ;  it  also  strengthens  the  governors  from  above  and 
below  the  chair.  The  directors  below  the  chair  give  the 
governor  a  loyal  and  hearty  support,  because  they  feel 
that  one  day  their  own  turn  may  come,  while  those  above 
the  chair,  having  passed  through  the  ordeal,  know  the 
value  of  their  colleagues'  support. 

The  governor  and  deputy  governor  are  in  daily  at- 
tendance at  the  bank  ;  and  there  is  also  a  daily  commit- 
tee, consisting  of  three  directors,  who  meet  at  half-past 
eleven  o'clock,  to  receive  reports  of  all  proceedings  at  the 
branches,  see  that  the  whole  of  the  securities  of  the  pre- 
vious day  have  been  lodged  with  the  proper  officers,  take 
in  or  deliver  gold  or  silver  from  the  vaults,  approve  or  re- 
ject bills  offered  for  discount,  examine  from  time  to  time 
securities  deposited  by  customers,  and  attend  generally  to 
any  work  required  by  the  governors. 

The  twenty-four  directors  in  addition  to  the  two  gov- 
ernors, and  these,  collectively,  constitute  the  court  of  di- 
rectors. The  court  meets  for  regular  business  every 
Thursday,  when  a  statement  is  made,  showing  the  exact 
position  of  the  bank  accounts  up  to  the  preceding  night, 
and  when  every  matter  is  brought  before  it  requiring  its 
authority,  such  as  the  granting  of  discount  accounts,  the 
ordering  of  payments  for  lost  notes,  the  granting  of  pen- 
sions, and  all  other  matters  which  the  governor  has  not 
authority  to  carry  out  on  his  own  responsibility,  as  well 


242  HISTORY    OF  THE 

as  those  which  the  governor  thinks  of  sufficient  import- 
ance to  require  communication  to  the  directors. 

The  directors  have  full  cognizance,  either  by  direct 
weekly  communication  or  otherwise,  of  every  transaction 
carried  on  in  the  bank.  The  court  of  directors  is  divided 
into  certain  committees,  whose  duty  it  is  to  attend  to  all 
matters  referred  especially  to  their  consideration,  and  who 
are  required  to  report  their  proceedings  from  time  to  time 
to  the  court. 

The  regular  committees  are  six  in  number: — 

The  committee  of  treasury. 

The  committee  of  daily  waiting. 

The  committee  for  law  suits  and  the  management 
of  the  branch  banks. 

The  committee  for  the  house  and  servants  and  the 
examination  of  clerks. 

The  committee  of  inspection  for  the  cashier's  office. 

The  committee  of  inspection  for  the  accountant's 
office. 

In  addition  to  which,  special  committees  are  from 
time  to  time  appointed,  as  occasion  may  require. 

The  treasury  committee  consists  of  the  two  gov- 
ernors for  the  time  being,  the  directors  who  have  already 
filled  those  positions,  and  those  who,  without  having 
served  as  governor,  have  been  specially  elected  by  the 
court  to  this  committee. 

The  committee  of  daily  waiting  consists  of  three 
directors  in  rotation  from  the  whole  body.  Their  attend- 
ance is  at  half-past  eleven  o'clock  daily,  and  they  are 
required  to  remain  until  all  that  part  of  the  business  of  the 
day  which  is  usually  referred  to  them  is  concluded.     All 


i 


BANK    OF    ENGLAND.  243 

bills  offered  for  discount  in  London  are  submitted  to  this 
committee,  and  all  bills  discounted  at  the  country  branches, 
except  local  bills,  are  shown  to  them  on  the  following  day. 
They  have  likewise  charge  of  all  bullion  not  required  by 
the  cashiers  for  daily  wants. 

The  committee  for  law  suits  and  the  management  of 
the  branch  banks  attend  to  all  business  arising  from  prose- 
cutions relating  to  forgeries,  etc.,  and  to  everything 
appertaining  to  the  ordinary  administration  of  the 
branches. 

The  committee  for  the  house  and  servants  and  the 
examination  of  clerks  examine  and  pass  the  tradesmen's 
bills  and  accounts,  order  the  payment  of  the  salaries  of  the 
clerks  and  of  the  pensions,  and  in  addition,  examine  all 
candidates  for  admission  into  the  service,  and  consider 
the  periodical  reports  upon  the  recently  elected  clerks 
during  their  term  of  probation. 

The  clerical  machinery  of  this  vast  hive  is  divided 
into  the  "cash  side"  and  the  "accountant's  side."  The 
former,  under  the  immediate  supervision  of  the  chief 
cashier,  comprises  the  transaction  of  all  business  where 
actual  cash  is  concerned,  together  with  the  necessary  book- 
keeping which  it  involves  ;  the  latter,  under  charge  of  the 
chief  accountant,  takes  cognizance  of  all  matters  of  pure 
bookkeeping,  where  no  actual  cash  is  concerned,  such  as 
those  which  relate  to  the  national  debt  accounts,  the  regis- 
tration of  bank  notes  and  kindred  work.  In  olden  times, 
these  important  divisions  were  kept  much  more  distinct 
than  they  are  at  present.  There  was,  years  ago,  a  certain 
antagonism  between  the  two  chiefs,  which,  however,  has 
long  since  disappeared,  and  they  now  live  and  work  to- 


244  HISTORY    OF   THE 

gethcr  in  a  state  of  remarkable  harmony,  without  even 
fighting  over  the  question  of  precedence,  which  the  chief 
accountant  is  supposed  to  claim,  mainly,  it  is  said,  on  al- 
phabetical grounds,  because  A  comes  before  C.  The  su- 
pervision of  each  office  on  both  "  sides  "  of  the  bank  is 
intrusted  to  a  principal  and  assistant  principal,  who  are 
accountable  to  the  chief  cashier  or  accountant,  as  the  case 
may  be,  and  afterwards  to  a  commitee  of  directors. 

The  secretary  is  a  separate  officer  of  the  bank.  He 
nurses  the  charter,  and  sees  that  its  forms  and  ceremonies 
are  complied  with.  He  also  records  the  proceedings  of 
the  courts,  summons  and  attends  all  committee  meetings. 
The  secretary  waits  upon  the  governors  of  the  bank,  per- 
forms all  necessary  literary  work,  puts  the  candidates  for 
clerkship  through  their  preliminary  examination,  collects 
income  tax,  grants  orders  to  visit  the  bank,  etc.  His 
duties  are  multifarious  and  exacting. 

In  the  secretary's  office  the  loss  of  bank  notes,  bills, 
dividend  warrants,  etc.,  is  registered,  and  all  matters  and 
correspondence  arising  out  of  them,  is  conducted.  It 
may  be  mentioned  that  as  many  as  2,700  notes  have  been 
recorded  as  lost  in  the  course  of  a  single  year.  Applica- 
tions for  payment  of  lost  notes,  under  indemnity,  are  also 
investigated,  and  the  necessary  declarations  and  bonds 
prepared. 

Record  is  kept  in  the  secretary's  office  of  all  the  offi- 
cers, clerks  and  others  in  the  employ  of  the  bank,  with 
their  salaries,  securities,  etc.;  and  it  is  the  secretary's  duty 
to  prepare  and  issue  to  the  various  offices  lists  of  the  sal- 
aries and  pensions  for  payment  monthly  or  quarterly,  as 
they  become  due. 


BANK    OF    ENGLAND.  245 

The  secretary  conducts  the  examination  of  all  can- 
didates for  admission  into  the  service,  and  has  under  his 
control  about  one  hundred  newly-elected  clerks,  who  are 
not  at  first  attached  to  any  particular  office,  but  are  lent 
to  the  different  departments  as  their  services  are  re- 
quired. 

The  secretary  has  the  control  of  the  clerk  of  works' 
department,  and  records  and  generally  supervises  all  con- 
tracts and  expenditures  connected  therewith.  He  also 
examines  and  records  all  other  expenses  of  the  house, 
bringing  the  whole  before  the  committee  at  their  periodi- 
cal meetings  of  inspection. 

The  business  connected  with  the  bank  provident 
society,  which  was  established  many  years  ago,  to  pro- 
mote life  insurance  among  the  members  of  the  staff,  and 
the  payment  of  the  annuitants  on  the  directors'  fund 
for  widows  of  bank  clerks  and  porters,  are  also  included 
in  the  work  of  the  office. 

The  extreme  accuracy  and  dispatch  with  which  the 
clerical  labor  involved  in  the  business  of  the  Bank  of  Eng- 
land is  performed  is  almost  marvelous,  and  reflects  the 
highest  credit  on  the  administrative  machinery  of  the 
bank.  Every  possible  expedient  is  resorted  to  for  the  pur- 
pose of  facilitating  the  work  and  guarding  against  errors. 

The  total  number  of  employees  in  the  Bank  of  Eng- 
land is  upwards  of  i,i6o  persons,  including  those  at  the 
head  office  and  the  branches,  and  counting  in  the  clerks, 
porters,  mechanics  and  those  engaged  in  printing  the 
notes.  The  annual  salaries  amount  to  about  ^^300,000,  or 
$1,500,000,  besides  pensions  to  superannuated  officers 
which  amount  to  about  ;^45,OQO  more.     The  salaries  to  the 


246  HISTORY    OF   THE 

governors  and  the  directors  amount  to  ;^i4,ooo  per  annum. 
Everything  in  and  about  the  bank  is  conducted  on  a  very 
liberal  basis,  and  the  aggregate  of  the  annual  expenses  are 
something  enormous.  Officials,  clerks  and  the  general 
employees  of  the  bank  are  generally  well  paid. 

There  is  a  well  appointed  library  and  reading  room 
in  the  bank,  and  they  are  thoroughly  supplied  with  the 
standard  books,  periodicals  and  papers  of  the  world.  The 
works  of  reference  this  library  contains  is  second  to  none. 
There  are  about  18,000  volumes  in  the  library.  The  direct- 
ors are  liberal  in  their  contribution  of  money  for  these. 
It  mi""ht  also  be  well  to  state  in  its  connection  that  there 
are -also  a  Clerks'  Widow's  Fund,  a  fund  established  by 
the  clerks  with  the  assistance  of  the  bank.  We  take  the 
following  from  "Gilbart's  Practical  Treatise  on  Banking:" — 
*'  In  the  year  1841,  the  Bank  of  England  took  measures  for 
discontinuing  the  system  of  requiring  securities  from  the 
clerks.  Every  clerk  subscribed  annually  two  shillings  per 
cent,  upon  the  amount  of  his  surety  bond.  When  he  had 
subscribed  in  the  course  of  five  years  (or  immediately  if 
he  chose)  ten  shillings  per  cent.,  the  liability  of  his  sure- 
ties ceased.  Every  new  clerk  subscribes,  when  admitted, 
ten  shillings  per  cent,  on  the  amount  of  the  bond  he  would 
otherwise  give.  These  contributions  are  invested  in 
standard  securities.  This  fund  is  fixed  at  ;^6,000.  When 
at  this  amount,  the  interest  is  given  to  the  clerks'  wid- 
ow's fund.  When  the  claims  have  reduced  the  fund 
below  ;^6,ooo,  the  interest  goes  to  this  fund  until  it  has 
increased  to  this  amount.  If  the  claims  reduce  the  fund 
so  low  as  ^4,700,  then  the  clerks  are  required  to  make  a 
further  contribution  until  the  fund  is  again  raised  to  ;^6,000. 


BANK    OF    ENGLAND.  247 

But  this  contribution  is  never  more  than  two  shillings  per 
cent,  per  annum  on  the  amount  of  their  respective  bonds." 

Connected  with  the  above  is  "The  United  Guarantee 
and  Life  Insurance  Company,"  the  object  of  which  is  to 
grant  policies  for  fidelity  of  trust,  combined  with  policies 
of  insurance  on  life,  or  with  deferred  annuities  or  endow- 
ments. The  bank  also  has  an  apartment  where  its 
employees  can  dine  cheaply  and  well.  The  directors  of 
the  Bank  of  England  at  all  times  manifest  a  kindness  and 
good  will  towards  their  clerks. 

The  Bank  of  England  has  a  physician  who  attends 
daily  and  is  called  the  medical  officer.  He  looks  after  the 
health  of  the  clerks  and  other  employees.  Every  clerk, 
when  appointed,  is  carefully  examined,  to  ascertain  the 
condition  of  his  health.  If  he  applies  for  leave  of  absence 
on  the  ground  of  ill  health,  he  undergoes  a  medical  exam- 
ination. If  absent  from  illness  he  is  visited  by  the  medical 
officer,  who  reports  his  condition  to  the  bank  officials. 
If  a  clerk  complains  that  his  employment  is  injurious  to 
his  health,  he  is  examined,  and  in  some  cases  his  employ- 
ment is  changed.  If  a  clerk  applies  for  a  pension  on 
account  of  age  or  illness,  he  is  also  examined. 

The  clerical  force  of  the  Bank  of  England  is 
employed  on  a  strictly  civil  service  or  competitive  plan. 
Young  men  employed  in  subordidate  positions  have  time 
and  again  reached  the  limit,  spending  their  entire  lives  in 
the  service  of  the  bank.  Politics  or  favoritism  cut  no 
figure,  and  merit  alone  insures  permanency  and  advance- 
ment. 

Besides  the  governor,  deputy  governor  and  twenty- 
four  directors,  the  Bank  of  England  is  officered  by  the  fol- 


248  HISTORY    O^^   THE 

lowing  named  departments,  many  of  which  are  subdivided, 
until  the  business  of  the  bank  works  as  accurately  and  har- 
moniously as  a  well  regulated  clock  : 

Chief  accountant,  deputy  accountant,  assistant  ac- 
countant ;  chief  cashier  and  deputy  and  assistant ;  secre- 
tary and  deputy  and  assistant  ;  discount  office,  branch 
banks  office,  bank  note  office,  bank  stock  office,  consols 
office,  India  office,  register  office,  power  of  attorney  office, 
unclaimed  dividend  office,  cheque  office,  superintendent  of 
cashiers'  store,  numbering  and  dating  office,  bullion  office, 
bill  office,  public  drawing  office,  private  drawing  office, 
securities  office,  solicitors,  medical  officer,  architect,  etc. 

The  Bank  of  England  is  one  of  the  most  revered  of 
institutions,  and  the  visitor  to  London  regards  it  with  lit- 
tle less  awe  tlian  he  feels  when  he  looks  on  the  halls  in 
which  the  liberty  of  England  was  nursed  at  Westminster. 
Locally  speaking,  it  is  a  centre  of  London ;  in  a  larger 
sense,  it  is  the  pivot  of  the  world. 

Lombard  street,  Cornhill,  Cheapside,  King  William 
street  and  Queen  Victoria  street  have  their  confluence 
here,  and  empty  into  an  irregular  space,  with  the  Cor- 
inthian portico  of  the  Royal  Exchange  on  one  side,  the 
similar  architecture  of  the  Mansion  House  nearly  opposite, 
and  the  front  of  the  great  monetary  institution  on  the 
third.  The  jam  of  traffic  in  the  streets  about  the  bank  at 
times  becomes  hopelessly  entangled.  The  illustration  of 
the  bank  given  in  this  volume  is  first-class  in  every  par- 
ticular. 

The  Royal  Exchange  and  the  Mansion  House  have 
architectural  pretensions,  while  the  Bank  of  England  has 
none  whatever.     The  bank  has  no  windows  in  either  of  its 


BANK    OF    ENGLAND.  249 

fronts,  but  receives  light  from  above  or  from  its  courts. 
Its  exterior  gives  one  the  impression  of  a  strongly-built 
granite  inclosure,  treated  with  heavy  Ionic  decoration, 
pierced  with  a  ponderous  gate,  and  surrounded  by  a 
weighty  iron  railing,  which  separates  it  by  a  foot  or  two 
from  the  sidewalk.  Like  everything  else  in  London,  it  is 
blackened  by  the  soot-laden  atmosphere,  and  its  general 
aspect  is  unprepossessing.  Within  is  a  court  yard, 
guarded  by  a  sentinel  or  porter,  arrayed  in  flowing  crim- 
son and  gold  lace,  and  bearing  a  staff.  From  this  court 
yard  there  are  doors  or  gates  by  which  the  various  di- 
visions of  the  inclosure  are  reached,  all  of  them  low,  solidly 
constructed,  and  modest,  and  grouped  about,  in  all,  nine 
court  yards.  Of  these,  one  contains  one  or  two  stal- 
wart elms,  which  in  early  summer  seem  to  fill  the  entire 
spaceof  it  with  bright  and  luxuriant  verdure,  while  beneath 
them  is  a  fountain,  a  neat  bit  of  soft,  well-kept  turf,  and 
clusters  and  hedges  of  rhododendrons.  The  visitor  is 
hardly  prepared  to  find  a  green  court  yard,  great  robust 
trees,  and  the  sentimental  music  of  a  fountain  in  the 
heart  of  the  greatest  bank  in  the  world.  Probably  no 
other  trees  in  the  w^orld  grow  in  such  expensive  soil,  and 
to  the  visitor  who  sees  them  for  the  first  time  the  incon- 
gruity of  their  position  is  very  striking. 

The  interior  of  the  bank  has  little  of  special  interest, 
and  a  description  of  same  would  be  of  no  particular  value 
to  anyone.  It  is  full  of  respectability  and  business. 
Its  air  is  one  of  conservative  solemnity  and  decorous  ac- 
tivity, and  the  demeanor  of  its  employees  and  various 
officials  is  saturated  with  formal  propriety.  The  various 
halls   are  spacious  and  modern  in   appearance,   and  the 


250  HISTORY    OF   THE 

transactions  during  business  hours  seldom  involve  any 
crowding.  There  are  files  of  clerks  paying  out  money 
and  receiving  money  from  all  sorts  of  people,  other  clerks 
bending  over  ledgers  with  intense  application,  and  bank 
messengers  in  waiting,  who  are  dressed  in  swallow-tail 
coats  of  a  delicate  salmon-color,  with  silver  buttons,  flam- 
ing scarlet  waistcoats,  black  trousers  and  high  silk  hats. 
So  much  is  open  to  the  world  ;  and  even  if  the  spectator 
is  provided  with  a  director's  order  to  view  the  bank — a 
privilege  not  loosely  granted — there  is  little  of  real  inter- 
est for  him  to  see  ;  everything  is  commonplace,  stern 
and  secure. 

The  citizen  who  passes  it  on  his  way  to  his  business, 
the  merchant  who  considers  it  as  an  edifice  where  he  gets 
his  bills  discounted  or  lodges  his  cash  for  security,  the 
banker  who  visits  it  daily,  look  on  the  immense  building 
with  an  indifferent  eye.  Even  to  a  stranger,  its  external 
appearance  is  almost  lost  in  contemplating  the  nobler 
structures  that  surround  it.  The  Bank  of  England  occu- 
pies a  few  feet  more  than  eight  acres.  When  the  visitor 
passes  from  building  to  building,  and  notes  each  place 
devoted  to  its  separate  uses,  yet  all  of  them  links  in  one 
chain,  he  cannot  fail  to  be  affected  with  the  grandeur  of 
that  body  which  can  command  so  extensive  a  service. 
The  first  stone  of  the  original  building  was  laid  in  1732, 
and  later  additions  bring  it  to  its  present  size.  The  bank 
measures  on  the  south  side  365  feet;  on  the  w^est  side,  440 
feet;  on  the  north  side,  410  feet;  and  the  east  side,  245 
feet-.  The  principal  entrance  to  the  bank  is  from  Thread- 
needle  street,  opening  by  a  large  arched  gateway  into  a 
quadrangular  paved  court,  with  which  all  the  leading  com- 
munications are  connected. 


i 


BANK    OF    KNGLAND.  251 

On  the  establishment  of  the  bank  in  1694,  the  direct- 
ors engaged  the  hall  of  the  Grocers'  Company  for  the  pur- 
poses of  their  business,  and  continued  to  occupy  it  until 
the  year  1732,  when,  having  made  a  proposition  to  the 
Grocers'  Company  for  a  renewal  of  their  lease,  the  terms 
of  which  were  not  approved  of,  the  directors  were  author- 
ized to  "build  a  new  bank  in  Threadneedle  street,  and  to 
erect  an  equestrian  statue  of  King  William  before  it." 

In  August,  1732,  the  foundation  stone  was  laid,  on 
which  was  the  following  inscription : — 

"  The  foundation  of  this  building  of  the  Bank  of 
England  was  laid  Aiignst  ist,  17 J2,  in  the  sixth  year  of 
the  reign  of  King  George  the  Second.  Sir  Edward  Bell- 
amy, Knight  and  Alderman,  Governor;  the  Honorable 
Horatio  Townshend,  Esq.,  Deputy  Governor ;  "  together 
with  the  names  of  the  several  directors. 

Soon  after  the  completion  of  the  building,  the  pro- 
prietors of  the  bank  caused  a  statue  to  be  erected  in  the 
great  hall,  in  commemoration  of  its  founder,  with  a  latin 
inscription  of  which  the  following  is  a  translation  : — 

For  Restoring  Efficacy  to  the  Laws  ; 

Authority  to  the  Courts  of  Justice  ; 

Dignity  to  Parliament  ; 

To  all  his  subjects  their  Religion  and  Liberties  ; 

And  confirming  these  to  posterity, 

By  the  succession  of  the  Illustrious  House  of  Hanover 

To  the  British  Throne  : 

To  the  best  of  princes,  William  the  Third, 

Founder  of  the  Bank, 

This  Corporation,  from  a  sense  of  gratitude, 

Has  erected  this  Statue  ; 

And  dedicated  it  to  his  Memory 

In  the  year  of  our  Lord  1734, 

And  the  first  year  of  this  Building. 


252  HISTORY    OF   THE 

In  the  basement  of  the  bank  arc  the  barracks,  wherein 
thirt}--six  soldiers  are  quartered  from  seven  o'clock  every 
evening  until  the  next  morning-,  for  the  protection  of  the 
bank.  It  has  heen  the  custom  to  quarter  soldiers  in  the 
bank  since  the  Lord  George  Gordon  riots,  when  it  was 
threatened  by  a  mob.  Besides  these,  is  a  body  of 
watchmen,  all  whom  are  trained  to  the  use  of  the  ample 
arrangements  provided  for  in  case  of  fire. 

The  building  occupied  by  the  Bank  of  England  bears 
an  estimated  rental  of  ^'70,000  a  year.  The  two  principal 
officers  of  the  bank,  the  Chief  Accountant  and  the  Chief 
Cashier,  have  residences  within  its  walls  ;  and  although  it 
is  understood  that  they  or  their  deputies  shall  always  be 
in  their  residence,  the  bank  premises  are  never  left  with- 
out the  superintendence  of  other  responsible  agents — 
clerks  of  character  and  standing  being  appointed  to  attend 
every  night  during  the  year,  and  on  Sundays  and  on  bank- 
holidays. 

The  gradual  enfranchisement  of  banking  by  the  vari- 
ous enactments  between  1826  and  1858,  and  the  enormous 
progress  which  banking  has  since  made  throughout  Great 
Britain,  have,  however,  considerably  lessened  the  value  of 
the  exclusive  banking  privileges  accorded  to  the  Bank  of 
England,  and,  from  a  mere  proprietor's  point  of  view,  it  is 
quite  possible  that  the  Bank  of  England  might  profitably 
forego  their  charter  altogether  now  that  they  are  in  no  fear 
of  losing  it,  and,  so  far  as  pure  banking  is  concerned,  they 
no  longer  enjoy  a  monopoly. 

The  eminent  services  of  the  Bank  of  England  to  the 
political,  commercial  and  financial  world,  the  integrity  and 
success  with  which  it   has  been  conducted,  has  long  ago 


253 

BANK    OF    ENGI.AM'. 

been  reeo.nized  by  the  whole  world.  Generations  and 
centuries  come  and  go,  but  the  Bank  of  England  remams 
and  moves  along  with  a  stability  and  precision  that  .s 
truly  wonderful.  The  workings  and  history  of  the  Bank 
of  England  one  hundred  years  hence  will  be  substantially 
the  same  as  to-day. 


CHAPTER   XX. 


ENGLISH  AND  SCOTCH   BANKS. 

Scotch  Banks  Not  Affected  by  the  Bank  of  Englarid — 
First  Scotch  Bank — Its  Foiuider — Capital  and  Dis- 
tribution of  Shares — Origin  of  British  Linen  Bank — 
Passing  Through  Commercial  Crises — Minimnm  De- 
posit Received — Allowing  Interest  on  Deposits — 
Responsibility  of  Shareholders — Superior  Banking 
System — Taking  Advantage  of  an  Old  Law — A 
Scotch  Cash  Credit — General  Solidity  of  Scotch 
Banks — Responsibility  of  Bank  Partners — Lazv  on 
Attaching  a  Debtors  Property — Scotch  and  Irish 
Banks  in  Lojidon. 


The  monopoly  given  to  the  Bank  of  England  by  par- 
liament by  the  Act  of  1708,  preventing  more  than  six  in- 
dividuals from  entering  into  a  partnership  for  carrying  on 
the  business  of  banking,  did  not  extend  to  Scotland.  In 
consequence  of  the  exemption,  many  banking  companies, 
with  numerous  bodies  of  partners,  have  existed  for  a 
lengthened  period  in  that  part  of  the  empire. 

The  earliest  banking  institution  in  North  Britain  was 
tlic  Bank  of  Scotland.  It  was  projected  by  a  Mr.  John 
Holland,  of  London,  assisted  by  William  Paterson,  founder 


i 


BANK    OF    ENGLAND. 


of  the  Bank  of  England,  and  was  establisheos  Ivp  Acti^f  >''^^^c  \  ' 
the  Scotch  Parh'ament,  in  1694.  It  was  kno\\?Kl^  theX^  / -.~^.  ^ 
name  of  the  Governor  and  Company  of  the  Bank  orSi;;o€V/y  ^'<-^  \i 
land,  and  modeled  in  many  particulars  after  the  Bank  or**-»i=; 
England.  Its  original  capital  was  i^i,ooo,ooo,  or  £100,- 
000  sterling,  distributed  in  shares  of  ^1,000  Scotch,  or 
^63.,  6s.,  8d.,  sterling,  each.  In  1727  came  the  Royal 
Bank  of  Scotland  ;  in  1746,  the  British  Linen  Company, 
for  the  purpose,  as  its  name  implies,  of  undertaking  the 
manufacture  of  linen.  But  the  views  in  which  it  origi- 
nated were  speedily  abandoned,  and  it  became  a  banking 
company  only.  In  18 10  came  the  Commercial  Bank,  and 
in  1825  the  National  Bank.  Joint-stock  banks  have  been 
established  freely.  These  Scotch  banks  have  passed 
readily  through  commercial  crises  which  have  destroyed 
large  numbers  of  such  institutions  in  England,  The 
affairs  of  the  banks  are  uniformly  conducted  by  a  board  of 
directors,  annually  chosen  by  shareholders.  The  Bank  of 
Scotland  began  to  issue  £1  notes  so  early  as  1704,  and 
their  issue  has  since  been  continued  without  interruption. 
In  England  no  notes  below  £<,  are  issued. 

All  the  Scotch  banks  receive  deposits  of  as  low  a 
value  as  ^10,  and  often  lower,  and  allow  interest  upon 
them.  The  interest  allowed  by  the  banks  upon  deposits 
varies,  from  time  to  time,  according  to  the  variations  in 
the  currency  rate  of  interest. 

The  Bank  of  Scotland  and  the  Bank  of  England  are 
almost  identical  in  management  and  principle. 

The  bill  creating  the  Bank  of  Scotland  exempted  its 
capital  from  all  public  burdens,  and  gave  it  the  exclusive 
banking  in  Scotland  for  twenty-one  years,  or  until   17 16. 


250  HISTORY    OF    THE 

The  objects  for  which  the  bank  was  instituted,  and  its 
mode  of  management,  were  intended  to  be,  and  have  been 
in  most  respects,  similar  to  those  of  the  Bank  of  England. 
The  responsibility  of  the  shareholders  is  limited  to  the 
amount  of  their  shares.  The  capital  of  the  bank  was 
increased  to  ;^20O,0OO  in  1774,  and  in  1804  was  made 
^i,5CX3,ooo,  its  present  amount,  although  the  capital  was 
increased  to  ^3.000,000  in  1873,  by  private  act. 

The  Bank  of  Scotland  is  the  only  Scotch  bank  con- 
stituted by  Act  of  Parliament.  It  began  at  a  very  early 
period  to  receive  deposits  on  interest,  and  to  grant  credit 
on  cash  accounts,  a  minute  of  the  directors  with  respect 
to  the  mode  of  keeping  the  latter  being  dated  as  far  back 
as  1729.  It  is,  therefore,  entitled  to  the  credit  of  having 
introduced  and  set  on  foot  the  distinctive  principles  of  the 
Scotch  banking  system,  which,  whatever  may  be  its 
defects,  is  superior  to  most  other  systems  hitherto  estab- 
lished. Generally  speaking,  the  Bank  of  Scotland  has 
been  cautiously  and  skilfully  conducted  ;  and  there  can 
be  no  doubt  that  it  has  been  productive,  both  directly  and 
as  an  example  to  other  banking  establishments,  of  much 
public  utility  and  advantage. 

It  may  be  worth  mentioning  that  the  law  creating 
the  Bank  of  Scotland  declared  that  all  foreigners  who 
became  partners  in  the  bank,  should  by  doing  so  become, 
to  all  intents  and  purposes,  naturalized  Scotchmen.  After 
being  for  a  long  time  forgotten,  this  clause  was  taken  ad- 
vantage of  in  18 18,  when  several  aliens  acquired  property 
in  the  bank  in  order  to  secure  the  benefit  of  naturalization. 
I^ut  after  being  suspended,  the  privilege  was  finally  can- 
celled in  1822. 


1 


I 


BANK    OF    ENGLAND.  257 

The  loans  or  advances  made  by  the  Scotch  banks  are 
either  in  the  shape  of  discounts,  or  upon  cash  credits,  or, 
as  they  arc  more  commonly  termed,  "  cash  accounts." 

A  cash  credit  is  a  credit  given  to  an  individual  by  a 
banking-  company  for  a  limited  sum,  seldom  under /^lOO 
or  ^200,  upon  his  own  security,  and  that  of  two  or  three 
individuals  approved  by  the  bank,  who  become  securities 
for  its  payment.  The  individual  who  has  obtained  such  a 
credit  is  enabled  to  draw  the  wdiole  sum,  or  any  part  of  it, 
when  he  pleases,  replacing  it,  or  portions  of  it,  according 
as  he  finds  it  convenient,  interest  being  charged  upon 
such  part  only  as  he  draws  out. 

Joseph  Hume,  in  his  Essay  on  Balance  of  Trade,  says: 
"If  a  man  borrows  ;^5,ooo  from  a  private  hand,  besides 
that  it  is  not  always  to  be  found  when  required,  he  pays 
interest  for  it  whether  he  be  using  it  or  not.  His  bank 
credit  costs  him  nothing,  except  during  the  moment  it  is 
of  service  to  him,  and  this  circumstance  is  of  equal  ad- 
vantage, as  if  he  had  borrowed  money  at  a  much  lower 
rate  of  interest." 

Th's  is  plainly  one  of  the  most  commodious  forms  in 
which  advances  can  be  made.  Cash  credits  are  not,  how- 
ever, intended  to  be  "dead  loans;"  and  they  are  not 
granted  except  to  persons  in  business,  or  to  those  who  are 
frequently  drawing  out  and  paying  in  money. 

The  system  of  cash  credits  has  been  very  well  des- 
cribed in  the  report  of  the  Lords'  Committee  of  1826,  on 
Scotch  and  Irish  banking.  "  There  is,  also,"  say  their 
lordships,  "one  part  of  their  system  which  is  stated  by  all 
the  witnesses  to  have  had  the  best  effects  upon  the  peo- 
ple of  Scotland,  and  particularly  upon  the    middling  and 


258  HISTORY    OF   THE 

poorer  classes  of  society,  in  producing  and  encouraging 
habits  of  frugality  and  industry.  The  practice  referred  to 
is  that  of  cash  credits.  Any  person  who  applies  to  a 
bank  for  a  cash  credit  is  called  upon  to  produce  two  or 
more  competent  sureties,  who  are  jointly  bound  ;  and 
after  a  full  inquiry  into  the  character  of  the  applicant,  the 
nature  of  his  business,  and  the  sufficiency  of  his  securities, 
he  is  allowed  to  open  a  credit,  and  to  draw  upon  the  bank 
for  the  whole  of  its  amount,  or  for  such  part  as  his  daily 
transactions  may  require.  To  the  credit  of  the  account 
he  pays  in  such  sums  as  he  may  not  have  occasion  to  use, 
and  interest  is  charged  or  credited  upon  the  daily  balance, 
as  the  case  may  be.  From  the  facility  which  these  cash 
credits  give  to  all  the  small  transactions  of  the  country, 
and  from  the  opportunities  which  they  afford  to  persons 
who  begin  business  with  little  or  no  capital  but  their 
character,  to  employ  profitably  the  minutest  products  of 
their  industry,  it  cannot  be  doubted  that  the  most  im- 
portant advantages  are  derived  to  the  whole  community. 
The  advantage  to  the  banks  that  give  these  cash  credits 
arises  from  the  call  which  they  continually  produce  for 
the  issue  of  their  paper,  and  from  the  opportunity  which 
they  afford  for  the  profitable  employment  of  a  part  of 
their  deposits." 

The  expense  of  a  bond  for  a  cash  credit  of  i5"50O  is  1 2s. 
6d.  stamp  duty,  and  a  charge  of  from  5^.  to  lOi-.  6d.  per 
cent,  for  preparing  it. 

There  have  been,  on  the  whole,  comparatively  few 
failures  among  the  Scotch  banks.  In  1793  and  1825,  when 
so  many  of  the  English  banks  were  swept  off,  there  was 
not  a  single  establishment  in  Scotland  that  gave  way.     It 


I 


BANK    or    ENGLAND.  259 

Is  thought,  however,  that  the  long  familiarity  of  the  inhab- 
itants with  banks  and  paper  money,  and  the  less  risk  that 
has  attended  the  business  of  banking  in.  Scotland,  have 
been  the  principal  causes  of  the  greater  stability  of  the 
Scotch  banks. 

This  superior  solidity  appears  to  have  been  owing  to 
various  causes, —  partly  to  the  banks  having,  for  the  most 
part,  large  bodies  of  partners,  who,  being  conjointly  ai*d 
individually  bound  for  the  debts  of  the  companies  to  which 
they  belong,  go  far  to  render  their  ultimate  security  all 
but  unquestionable,  and  partly  to  the  facility  afforded  by 
the  law  of  Scotland  of  attaching  a  debtor's  property, 
whether  it  consist  of  land  or  movables,  and  making  it 
available  for  the  payment  of  his  debts. 

A  creditor  in  Scotland  is  empowered  to  attach  the 
real  and  heritable  as  well  as  the  personal  estate  of  his 
debtor,  for  payment  of  personal  debts,  among  which  may 
be  classed  debts  due  by  bills  and  promissory  notes  ;  and 
recourse  may  be  had,  for  the  purpose  of  procuring  pay- 
ment, to  each  description  of  property  at  the  same  time. 
Execution  is  not  confined  to  the  real  property  of  a  debtor 
merely  during  his  life,  but  proceeds  with  equal  effect  upon 
that  property  after  his  decease. 

The  law  relating  to  the  establishment  of  records  gives 
ready  means  of  procuring  information  with  respect  to  the 
real  and  heritable  estate  of  which  any  person  in  Scotland 
may  be  possessed.  No  purchase  of  an  estate  in  that  coun- 
try is  secure  until  the  sasine  (that  is,  the  instrument  cer- 
tifying that  actual  delivery  has  been  given)  is  put  on 
record,  nor  is  any  mortgage  effectual  until  the  deed  is  in 
like  manner  recorded. 


200  HISTORY    OF    THF.    BANK    OF    ENGLAND. 

In  the  case  of  conflicting  pecuniary  claims  upon  real 
property,  the  preference  is  not  regulated  by  the  date  of 
the  transaction,  but  /y  ///i'  da/e  of  its  record.  These 
records  arc  accessible  to  all  persons  ;  and  thus  the  public 
can  with  ease  ascertain  the  effective  means  which  a  bank- 
ing company  possesses  of  discharging  its  obligations  ;  and 
the  partners  in  that  company  are  enabled  to  determine, 
with  tolerable  accuracy,  the  degree  of  risk  and  responsi- 
bility to  which  the  private  property  of  each  is  exposed. 

English  joint-stock  banks  of  issue  are  debarred  from 
setting  up  branches  in  London,  or  within  sixty-five  miles 
of  it,  a  prohibition  originally  imposed  on  them  in  the 
interest  of  the  Bank  of  England  as  a  bank  of  issue. 
There  is  no  such  prohibition  affecting  Scotch  and  Irish 
banks,  which  can  set  up  offices  in  London  or  elsewhere  in 
England  subject  to  the  single  condition  affecting  all  bank- 
ing establishments  set  up  in  England  since  1844,  that 
notes  other  than  Bank  of  England  notes  are  not  issued  at 
such  offices  ;  and  it  is  obvious  that  a  Scotch  or  Irish  bank- 
ing company  establishing  a  head  office  in  London  would 
be  able  to  give  it  at  once  a  large  agency  business,  and 
would  be  able  to  feed  it  continuously  with  new  connec- 
tions, owing  to  the  flow  of  immigration  from  Scotland  and 
Ireland  to  London.  Accordingly,  the  directors  of  the 
National  Bank  of  Ireland  began  to  conduct  the  general 
business  of  banking  at  their  head  office  in  London  in 
1854,  and  they  have  subsequently  set  up  branches  in  the 
metropolis,  each  of  which  is  understood  to  be  the  centre 
of  much  business.  This  example  was  so  far  followed, 
that  the  National  Bank  of  Scotland  started  an  office  in 
London  in  1864  ;  the  Bank  of  Scotland  did  the  same  in 
1867;  and  the  Royal  Bank  in  1874,  and  others  followed  later. 


CHAPTER  XXI. 


A  FINANCIAL  PRESSURE. 

Definition  of  a  Pressure — Dates  of  Principal  Pressures — 
Speculation  the  Alain  Cansc — Gilbart  on  Pressures — 
The  Duties  of  a  Banker — Pressure  of  i8^y — Report 
of  the  Lords'  Committee — The  Government  Asks  the 
Bank  of  England  for  Assistance — Correspondence 
Betiveen  the  Bank  and  the  Goveriiment. 


A  PRESSURE  on  the  money  market  may  be  defined  a 
difficulty  of  getting  money,  either  by  way  of  discounting 
bills,  or  of  loans  upon  government  securities.  This  diffi- 
culty is  usually  accompanied  by  an  unfavorable  course  of 
exchange,  a  contraction  of  the  circulation  of  the  Bank  of 
England,  and  a  high  rate  of  interest.  These  three  cir- 
cumstances have  the  relation  to  each  other  of  cause  and 
effect.  The  unfavorable  course  of  exchange  induces  the 
Bank  of  England  to  contract  her  circulation  ;  and  the 
contraction  of  the  circulation,  by  rendering  money  more 
scarce,  increases  its  value,  and  leads  to  an  advanced  rate 
of  interest.  The  removal  of  the  pressure  is  in  the  same 
order — the  foreign  exchange  become  favorable,  the  Bank 
of  England  then  extends  her  circulation,  money  becomes 
more  abundant,  and  the  rate  of  interest  falls.     The  degree 


2G2 


HISTORY    OF   THE 


to  which  the  exchanges  arc  unfavorable  is  indicated  by 
the  stock  of  gold  in  the  Bank  of  England  ;  and  when  this 
is  at  its  lowest  amount,  the  pressure  may  be  considered 
to  have  attained  its  extreme  point  ;  for,  as  the  amount 
of  <^old  increases,  the  bank  will  extend  her  circulation, 
and  the  pressure  will  subside.  The  principal  pressures 
that  have  occurred  of  late  years  have  been  those  of  1825, 
1836,  1839,  1847,  1857  and  1866. 

A  season  of  pressure  has  always  been  preceded  by 
one  of  speculation  ;  and  hence  it  follows  that  a  banker 
who  wishes  to  be  easy  in  a  time  of  pressure  must  act 
wisely  in  the  previous  season  of  speculation.  It  requires 
no  ordinary  firmness  to  do  this.  But  unless  a  banker  act 
wisely  in  the  previous  time  of  speculation,  his  wisdom 
will  probably  be  of  little  avail  when  the  pressure  arrives. 

Gilbart,  in  his  "  Treatise  on  Banking,"  has  considerable 
to  say  about  pressures,  and  we  reproduce  a  few  of  his 
remarks  and  suggestions  : — 

"While,  therefore,  money  is  still  abundant,  the  public 
funds  high,  and  other  bankers  liberal  in  accommodation, 
he  should  be  doubly  cautious  in  times  of  pressure  or  of  pan- 
ics, and  also  when  a  severe  stringency  of  the  money  market 
is  apparent,  against  taking  bills  of  a  doubtful  character,  or 
making  advances  upon  irregular  securities.  He  should 
not  suffer  the  desire  of  employing  his  funds,  or  the  fear  of 
offending  his  customers,  to  induce  him  to  deviate  from 
sound  banking  principles.  He  should  also  take  this  oppor- 
tunity of  calling  up  all  dead  or  doubtful  loans,  and  of  get- 
ting rid  of  all  weak  customers.  He  should  also,  under 
any  circumstances,  avoid  making  advances  for  any  length 
of  time,  and  investments  in  securities  that  are  not  at  all 


BANK    OF    ENGLAND.  263 

times  convertible,  or  the  price  of  which  is  likely  to  sustain 
a  great  fall  on  the  occurrence  of  a  pressure.  The  discount 
of  first-rate  commercial  bills  having  a  short  time  to  run, 
or  short  loans  on  stock  or  other  undesirable  security,  how- 
ever low  the  interest  received,  seem  to  be  the  most  safe 
and  advantageous  transactions. 

"  When  the  aspect  of  affairs  seems  to  threaten  that 
money  will  be  still  more  in  demand,  and  the  failure  of  a 
number  of  merchants  and  traders  may  consequently  be 
apprehended,  it  behooves  him  to  prepare  for  approaching 
events  by  avoiding  all  discounts  of  bills  of  an  inferior 
class,  and  by  keeping  his  funds  in  an  available  state. 
With  a  view  to  these  objects,  he  will  review  all  his  loan 
and  discount  accounts,  call  up  his  loans  of  long  standing, 
where  it  can  be  done  without  injury  to  the  interest  or  rep- 
utation of  his  bank,  avoid  all  overdrawn  accounts,  and 
reduce  the  amount  of  discounts  on  the  inferior  class  of 
accounts.  In  performing  these  operations,  he  will 
exercise  due  judgment  and  discretion,  making  proper 
distinction  between  his  customers  and  reducing  chiefly 
those  bills  which  are  of  an  unbusiness  character,  or  which 
are  drawn  on  doubtful  people,  or  upon  parties  that  he 
knows  nothing  about;  he  will  also  mark  particularly  those 
accounts  which  require  large  discounts,  but  keep  no  cor- 
responding balance  to  the  credit  of  their  current  accounts. 
As  the  pressure  advances  he  will  find  that  there  are  three 
demands  upon  his  funds.  First,  his  customers  will  re- 
duce their  balances,  and  keep  less  money  in  his  hands. 
Money  lodged  at  interest  will  be  taken  away,  because  the 
parties  can  make  higher  interest  elsewhere,  or  they  will 
be  tempted  by  the  low  price  of  stock  to  invest  it  in  gov- 


264  HISTORY    OF    THE 

crnmcnt  securities.  Secondly,  he  Avill  have  a  greater 
demand  for  loans  and  discounts,  not  merely  from  weak 
i:)cople  whom  he  might  not  care  about  refusing,  but  from 
persons  of  known  wealth,  whom  it  is  his  interest  and  his 
inclination  to  oblige.  Thirdly,  he  will  think  it  prudent  to 
guard  against  sudden  demands  by  keeping  a  larger 
amount  of  bank  notes  in  his  possession.  To  meet  all 
these  demands,  he  will  be  compelled  to  realize  on  some  of 
his  securities,  and  he  will  realize  those  first  on  which  he 
will  sustain  no  loss. 

"  During  a  pressure  a  banker  will  have  to  give  a  great 
many  refusals,  and  some  discretion  will  be  necessary  in 
the  form  of  giving  these  refusals.  Let  him  refuse  in  what 
way  he  may  at  such  a  season,  he  will  be  sure  to  give 
offence.  And  the  party  refused  will  possibly  repeat  the 
refusal  to  his  business  acquaintances,  and,  from  motives  of 
ignorance  or  malignity,  represent  the  refusal  as  having 
arisen  from  want  of  means,  and  possibly  may  circulate  a 
report  that  the  banker  is  about  to  stop  payment.  Hence 
rumors  about  banks  are  always  rife  in  seasons  of  pressure, 
and  they  add  to  the  general  want  of  confidence  which 
then  prevails.  As  far  as  past  experience  goes,  all  panics 
or  pressures  have  resulted  in  a  subsequent  abundance  of 
money.  It  would  be  a  grand  thing  for  a  banker  if  he 
could  know  beforehand  at  what  precise  point  this  change 
would  take  place.  But  this  he  cannot  know,  and  he  had 
better  not  speculate  on  the  subject,  but  just  follow  the 
course  of  events  as  they  occur. 

"  The  pressure  of  1847  will  be  briefly  traced.  At  the 
meeting  of  Parliament  in  the  latter  end  of  1847,  commit- 
tees were  appointed  by  both  the  House  of  Lords  and  the 


BANK    OF    EXGI-AND.  265 

House  of  Commons,  to  "inquire  into  the  causes  of  the  dis- 
tress which  has  for  some  time  prevailed  among  the 
commercial  classes ;  and  how  far  it  has  been  affected  by 
the  laws  for  regulating  the  issue  of  bank  notes  payable  on 
demand." 

Following  is  an  extract  from  the  report  of  the  Lord's 
Committee  as  to  the  causes  of  the  pressure: — 

"A  sudden  and  unexampled  demand  for  foreign  corn, 
produced  by  a  failure  in  many  descriptions  of  agricultural 
produce  throughout  the  United  Kingdom,  coincided  with 
the  unprecedented  extent  of  speculation  i)roduced  by  in- 
creased facilities   of   credit   and   a  low   rate    of   interest, 
had    for    some    time    occasioned    over-trading    in     many 
branches  of  commerce.     This  was  more   especially  felt  in 
railroads,  for  which  calls  to  a  large  amount  were  daily  be- 
coming  payable,    without    corresponding   funds  to    meet 
them,  except  by  the  withdrawal  of  capital  from  other  pur- 
suits  and   investments.     These  causes  account  for  much 
of  the  pressure  under  which   many  of  the   weaker   com- 
mercial firms  were  doomed  to  sink,   and  which  was  felt 
even  by  the  strongest.     To  these  causes  may  be  added  a 
contemporaneous  rise  of  price  in  cotton  ;    and,  with    re- 
spect to  houses  connected  with  the  East  and  West  India 
trade,  a  sudden  and  extensive  fall  in  the  price  of  sugar,  by 
which  the  value  of  their  most  readily  available  assets  un- 
derwent   great   depreciation.     Some   of  these  causes  are 
obviously  beyond   the  reach  of  legislative  control.     But 
upon  those  which  are  connected  with  the  extension    of 
commercial   speculation,  encouraged   or  checked    by  the 
facility  or  the  difficulty  of  obtaining  credit,  by  the  advance 
of  capital  and  the  discount  of  bills,  the  powers  and  posi- 


266  HISTORY    OF    THE 

tion  of  the  Bank  of  England  must  at  all  times  enable  that 
corporation  to  exercise  an  important  influence.  The  com- 
mittee have  consequently  felt  it  to  be  their  duty  to  inquire 
into  the  course  pursued  by  the  bank,  and  they  have  come 
to  the  conclusion  that  the  recent  panic  was  materially  ag- 
gravated by  the  operation  of  that  statute,  and  by  the  pro- 
ceedings of  the  bank  itself  This  effect  may  be  traced 
directly  to  the  Act  of  1844,  in  the  legislative  restriction 
imposed  on  the  means  of  accommodation,  whilst  a  large 
amount  of  bullion  was  held  in  the  coffers  of  the  bank,  and 
during  a  time  of  favorable  exchanges  ;  and  it  may  be 
traced  to  the  same  cause,  indirectly,  as  a  consequence  of 
great  fluctuations  in  the  rate  of  discount,  and  of  capital 
previously  advanced  at  an  unusually  low  rate  of  interest. 
This  course  the  bank  would  hardly  have  felt  itself  justified 
in  taking,  had  not  an  impression  existed  that,  by  the  sep- 
aration of  the  issue  and  the  banking  departments,  one  in- 
flexible rule  for  regulating  the  bank  issues  has  been  sub- 
stituted by  law  in  place  of  the  discretion  formerly  invested 
in  the  bank." 

To  tide  over  the  "pressure"  it  was  found  necessary 
on  the  part  of  the  government  to  call  on  the  Bank  of  Eng- 
land again.  We  have  been  furnished  a  copy  of  the  cor- 
respondence between  the  First  Lord  of  the  Treasury  and 
the  Chancellor  of  the  Exchequer  and  the  Bank  of  Eng- 
land, respecting  the  suspension  of  the  Act  of  1844  •  — 

"  Downing  Street,  Oct.  25,  1847. 
"  To  the   Governor  and  Deputy-Governor  of  the  Bank  of 

England: — 

"  Gentlemen  : — Her  Majesty's  Government  has 
seen   with   the   deepest   regret   the  pressure   which   has 


BANK    OF    ENGLAND.  267 

existed  for  some  weeks  upon  the  commercial  interests  of 
the  country,  and  that  this  pressure  has  been  aggravated 
by  a  want  of  that  confidence  which  is  necessary  for  carry- 
ing on  the  ordinary  deahngs  of  trade. 

"  They  have  been  in  hopes  that  the  check  given  to 
transactions  of  a  speculative  character,  the  transfer  of  cap- 
ital from  other  countries,  the  influx  of  bullion,  and  the 
feeling  which  a  knowledge  of  these  circumstances  might 
have  been  expected  to  produce,  would  have  removed  the 
prevailing  distrust. 

"  They  were  encouraged  in  this  expectation  by  the 
speedy  cessation  of  a  similar  state  of  feehng  in  the  month 
of  April  last. 

"  These  hopes  have,  however,  been  disappointed,  and 
Her  Majesty's  Government  has  come  to  the  conclusion, 
that  the  time  has  arrived  when  it  ought  to  attempt,  by 
some  extraordinary  and  temporary  measure,  to  restore 
confidence  to  the  mercantile  and  manufacturing  commu- 
nity. 

"  For  this  purpose,  they  recommend  to  the  directors 
of  the  Bank  of  England,  in  the  present  emergency,  to 
enlarge  the  amount  of  their  discounts  and  advances  upon 
approved  security;  but  that,  in  order  to  retain  this  opera- 
tion within  reasonable  limits,  a  high  rate  of  interest 
should  be  charged. 

"In  present  circumstances,  they  would  suggest  that 
the  rate  of  interest  should  not  be  less  than  8  per  cent. 

"If  this  course  should  lead  to  any  infringement  of  the 
existing  law,  Her  Majesty's  Government  will  be  prepared 
to  propose  to  Parliament  on  its  meeting,  a  Bill  of  Indem- 
nity.    They  will  rely  upon  the  discretion  of  the  directors 


268  HISTORY    OF    THE 

to  reduce  as  soon  as  possible  the  amount  of  their  notes,  if 
any  extraordinary  issue  should  take  place,  within  the 
limits  prescribed  by  law. 

"Her  Majesty's  Government  are  of  opinion  that  any 
extra  profit  derived  from  this  measure  should  be  carried 
to  the  account  of  the  public,  but  the  precise  mode  of 
doing  so  much  must  be  left  to  future  arrangement. 

"Her  Majesty's  Government  are  not  insensible  of  the 
evil  of  any  departure  from  the  law  which  has  placed  the 
currency  of  this  country  upon  a  sound  basis;  but  they 
feel  confident  that,  in  the  present  circumstances,  the 
measure  which  they  have  proposed  may  be  safely 
adopted,  and  at  the  same  time  the  main  provisions  of  that 
law,  and  the  vital  principle  of  preserving  the  convertibility 
of  the  bank  note,  may  be  firmly  maintained. 
"We  have  the  honor  to  be,  gentlemen, 
"Your  obedient  humble  servants, 

[Signed]  "J.  RusSELL. 

•'Charles  Wood." 

«'  To  the  First  Lord  of  the  Treasiiry  and  the  Chancellor  of 

the  Exchequer: — 

"Bank  of  England,  Oct.  25,  1847. 

"Gentlemen: — We  have  the  honor  to  acknowledge 
}-our  letter  of  this  day's  date,  which  we  have  submitted  fo 
the  Court  of  Directors,  and  we  enclose  a  copy  of  its  reso- 
lutions therein:  — 

''Resolved,  i. — That  this  Court  do  .accede  to  the  recom- 
mendation contained  in  the  letter  from  the  First  Lord  of 
the  Treasury  and  the  Chancellor  of  the  Exchequer,  dated 
this  day,  and  addressed  to  the  governor  and  deputy  gov- 
ernor of  the  Bank  of  England,  which  has  just  been  read. 


BANK    OF    ENGLAND.  2Gy 

"2. — That  the  minimum  rate  of  discount  on  bills  not 
having  more  than  ninety-five  days  to  run  be  eight  per 
cent. 

"  3. — That  the  advances  be  made  on  bills  of  exchange, 
on  stock,  exchequer  bills,  and  other  approved  securities, 
in  sums  of  not  less  than  two  thousand  pounds,  and  for  a 
period  to  be  fixed  by  the  governors,  at  the  rate  of  eight 
per  cent,  per  annum. 

"We  have  the  honor  to  be,  gentlemen, 
"Your  most  obedient  servants: 

"James  Morris,  Governor. 
"H.  J.  Prescott,  Deputy  Governor." 

"  To  the  Governor  and  Deputy  Governor  of  the  Bank  of 
England: — 

"Downing  Street, Nov.  23, 1847. 

"  Gentlemen — Her  Majesty's  Government  have 
watched,  with  the  deepest  interest,  the  gradual  revival  of 
confidence  in  the  commercial  classes  of  the  country. 

"  They  have  the  satisfaction  of  believing  that  the 
course  adopted  by  the  Bank  of  England,  on  their  recom- 
mendation, has  contributed  to  produce  the  result,  whilst 
it  has  led  to  no  infringement  of  the  law. 

"  It  appears,  from  the  accounts  which  j-ou  have  trans- 
mitted to  us,  that  the  reserve  of  the  Bank  of  England  has 
been  for  some  time  steadily  increasing,  and  now  amounts 
to  ^5.000,000.  This  increase  has,  in  a  great  measure, 
arisen  from  the  return  of  notes  and  coin  from  the  country. 

"The  bullion  exceeds  ^10,000,000,  and  the  state  of 
the  exchanges  promises  a  further  influx  of  the  precious 
metals. 


270  HISTORY    OF   THE    KANK    OF    ENGLAND. 

"  The  knowledge  of  these  facts  by  the  pubhc  is  cal- 
culated to  inspire  still  further  confidence. 

"In  these  circumstances,  it  appears  to  Her  Majesty's 
Government,  that  the  purpose  which  they  had  in  view  in 
the  letter  which  we  addressed  to  you  on  Oct.  25,  has  been 
fully  answered,  and  that  it  is  unnecessary  to  continue  that 
letter  any  longer  in  force. 

"We  have  the  honor  to  be,  gentlemen, 
"  Your  obedient,  humble  servants, 
[Signed]  "J.  RusSELL, 

"  Chas.  Wood." 

"  To  the  First  Lord  of  the  Treasury  and  the  Chancellor  oj 
the  Exchequer: — 

"  Bank  of  England,  Nov.  23,  1847. 
"  Gentlemen — W^e  have  the  honor  to  acknowledge 
the  receipt  of  your  letter  of  this  day's  date,  in  which  you 
communicate  to  us  that  in  consequence  of  the  gradual  re- 
vival  of  confidence   in    the    commercial    classes  of    the 
country,  it  appears  to  Her  Majesty's  Government  that  the 
object  they  had  in  view  in  the  letter  they  addressed  to  us 
on  Oct.  25th  has  been  fully  answered,  and  that  it  is    un- 
necessary to  continue  that  letter  any  longer  in  force. 
"  We  have  the  honor  to  be,  gentlemen, 
"  Your  obedient,  humble  servants, 
[Signed]  "James  Morris,  Governor. 

"  H.  J.  Prescott,  Deputy  Governor." 


CHAPTER    XXII. 


A  COPY  OF  THE  CORRESPONDENCE 


BETWEEN    THE 


CHANCELLOR  OF  THE  EXCHEQUER 

AND  THE 
RELATIVE   TO    THE 

RENEWAL    OF    THE    CHARTER    OF    1844, 

■Which  is  Treated  at  Length  in  Chapter  IX,  beginning  on  page  125. 


To   the    Governor  and  Dep7ity  Governor  of  the  Bank  of 

Englaiici : — 

Downing  Street,  i6th  April,  1844. 

Gentlemen — As  under  the  provisions  of  the  3  and  4 
W.  IV.  c.  98,  the  1st  of  August  is  the  day  after  which  it 
will  be  competent  to  the  House  of  Commons  to  give  a 
notice  to  the  Bank  of  England  as  to  the  termination, 
within  a  limited  period,  of  their  present  exclusive  priv- 
ileges, Her  Majesty's  Government  judge  it  advisable   to 


272  HISTORY    OF    THE 

endeavor  to  come  to  an  understanding  with  the  bank  as  to 
their  future  relation  to  the  government,  rather  than  to 
terminate  the  existing  arrangements  by  recurring  to  the 
notice  required  by  the  Act  of  Parliament. 

In  submitting  to  you  the  views  of  tlie  government,  I 
would  premise  that  the  main  object  of  the  government  in 
any  new  arrangement  is  one  in  the  success  of  which  thebank 
can  be  scarcely  less  interested  than  the  government  ; 
namely,  to  place  the  general  circulation  of  the  country  on  a 
sounder  footing,  and  to  prevent,  as  much  as  possible,  fluc- 
tuations in  the  currency,  of  the  nature  of  those  which 
have,  at  different  times,  occasioned  hazard  to  the  bank 
and  embarrassment  to  the  country. 

It  appears  highly  desirable  that  any  new  arrange- 
ment should  be  founded  on  the  basis  of  an  entire 
separation  of  the  business  of  the  issue  of  notes  from  that 
of  banking.  This  measure  might  be  effected  by  the 
establishment  of  a  Public  Department  for  the  issue  of 
notes  independent  altogether  of  the  bank;  but  Her 
Majesty's  Government  is  willing,  in  the  first  instance,  to 
consider  whether  this  can  be  effected  by  a  division  of  the 
bank  into  two  distinct  and  separate  departments — to  con- 
duct exclusively,  one  the  business  of  issue,  the  other  that 
of  banking.  The  first  question  for  the  bank  to  consider 
is,  how  far  they  are  willing  to  undertake  this  duty. 
Should  they  be  disposed  to  administer  the  functions  of 
issue,  it  would  be  desirable  that  the  following  principle 
should  be  adhered  to: — That  a  certain  amount  of  notes 
should  be  issued  on  securities,  and  that  all  other  notes 
required  beyond  that  amount  should  be  issued  only  in  ex- 
change for  bullion — that  the  securities  should    be,  to  a 


BANK    OF    ENGLAND.  273 

certain  extent,  of  such  a  nature  as  to  admit  of  ready  con- 
vertibility, and  should  not  be  increased  beyond  the 
amount  originally  fixed,  except  under  circumstances  to  be 
stated  by  the  bank  to  the  government ;  and  after  the 
consent  of  certain  members  of  the  government,  namely, 
the  First  Lord  of  the  Treasury,  the  Chancellor  of  the 
Exchequer,  and  the  Master  of  the  Mint,  shall  have  been 
signified. 

It  is  proposed  from  henceforth  to  prohibit  the  estab- 
lishment of  any  new  bank  of  issue;  to  restrict  the  issue  of 
their  own  notes  to  those  banks  at  present  exercising  that 
privilege,  and  to  limit  the  issue  of  such  banks  to  the 
amount  of  notes  issued  by  them  on  an  average  of  a  given 
preceding  period,  and  in  the  event  of  their  failure  or 
liquidation,  to  prohibit  under  any  circumstances,  the  re- 
sumption of  their  own  circulation.  The  void  created  by 
the  withdrawal  of  any  existing  private  or  joint-stock  bank 
circulation,  either  voluntarily  or  under  the  circumstances 
adverted  to,  should  be  supplied,  if  necessary,  by  the  sub- 
stitution of  notes  of  the  Bank  of  England  ;  and,  in  such  a 
case,  the  bank  acting  in  concert  with  the  government,  as 
provided  for  in  a  preceding  paragraph,  might  be  author- 
ized to  make  a  proportionate  increase  in  the  amount  of 
those  securities  which  constitute  the  foundation  of  the 
issue  of  paper;  the  whole  net  profit  derived  from  this 
additional  issue  would  be  carried  to  the  account  of  the 
government,  and  would  be  in  addition  to  the  annual  pay- 
ment which  the  bank  may  agree  to  make. 

It  is  intended  that  a  weekly  publication  should  take 
place,  showing  the  state  of  both  the  issue  and  banking  de- 
partments of  the  bank,  and  it  will  be  required  that  each 


274  HISTORY    OF   THE 

private  and  joint-stock  bank  issuing  its  own  notes,  should 
make  once  a  week  a  publication  of  the  amount  of  their 
notes  in  circulation. 

Under  such  an  arrangement,  it  is  obvious  that  the 
bank  will  not  merely  retain  its  existing  privileges  of  hav- 
ing no  bank  of  more  than  six  partners  issuing  notes  within 
sixty-five  miles  of  London,  but  will  be  secured  against  the 
competition  within  that  district,  of  any  new  banks  of  issue, 
even  with  less  than  six  partners,  which  might  otherwise 
be  established  ;  and  although,  as  the  profit  of  any  increased 
issue  will  be  placed  henceforth  to  the  account  of  the  gov- 
ernment, the  bank  will  not  derive  direct  pecuniary  advan- 
tage, yet  the  extension  of  business  and  of  confidence  in 
the  bank  (which  must  result  from  the  extension  of  its 
notes  consequent  upon  this  further  exclusion)  must  be  to 
the  bank  a  source  of  no  inconsiderable  benefit. 

I  must  add,  that  it  is  not  proposed  to  continue  the 
prohibition  which  is  now  in  force  as  to  the  drawing,  accept- 
ing, or  paying  bills,  within  the  sixty-five  mile  circle  around 
London. 

Should  an  arrangement  on  these  principles  meet  the 
views  of  the  bank,  the  points  remaining  for  consideration 
will  be,  the  period  for  which  the  bank  charter  shall  be  re- 
newed, and  the  amount  of  the  payment  which  ought  to 
be  made  by  the  bank  to  the  public  during  the  period  of  its 
continuance. 

Her  Majesty's  Government  considers  it  advisable  that 
the  charter  should  be  granted  for  ten  years,  from  the  ist 
of  August,  1845,  and  should,  at  the  expiration  of  that 
period,  be  terminable  at  any  time  upon  a  notice  of  twelve 
months,  but,  until  such  notice  be  given,  should  continue 


BANK    OF    ENGLAND.  275 

in  force.  The  amount  of  payment  to  be  made  to  the 
public  by  the  bank  will  depend  upon  a  joint  consideration 
of  the  benefits  secured  by  this  arrang^ement  to  the 
banking  department  of  the  bank,  and  of  the  pro- 
portion of  the  profits  of  the  issue  or  circulation  de- 
partment, which  the  public  is  entitled  to  claim.  As 
bankers,  the  bank  will  retain  the  management  of  the  pub- 
lic debt,  and  the  advantage  of  the  government  deposits 
and  the  balances  of  the  several  public  accounts  at  the 
bank.  It  must,  however,  be  distinctly  understood,  that 
the  government  retains  an  entire  discretion  as  to  the 
amount  of  such  deposits  to  be  left  in  the  hands  of  the 
bank,  and  as  to  a  participation  in  the  profits  of  such  de- 
posits, if  they  should,  from  any  circumstances,  be  materi- 
ally increased. 

With  respect  to  the  profits  of  the  circulation  depart- 
ment, supposing  the  fixed  amount  of  securities  to  be  i^i4,- 
000,000,  the  profit  would,  obviously,  be  the  ciifiference  be- 
tween the  interest  received  on  those  securities  and  the  ex- 
penditure required  for  the  manufacture  and  issue  of  the 
notes,  the  keeping  of  the  accounts  connected  with  them,  and 
the  receipt  and  custody  of  the  bullion,  which  might,  from 
time  to  time,  come  into  the  hands  of  that  department. 

Assuming  three  per  cent,  as  the  rate  of  interest,  the 
gross  profit  of  the  circulation  department  would  be  ^420,- 
000. 

It  was  stated  by  the  bank,  in  a  paper  presented  to  the 
committee  on  the  bank  charter  in  1832,  that  the  expense 
of  the  circulation  was  at  that  time  ^106,000.  It  would  be 
desirable  that  the  items  constituting  this  aggregate  sum 
should  be  separately  considered,  with  a  view  of  ascertain- 


276  HISTORY    OF   THE 

ing  whether,  without  diminishing  the  advantages  now 
afforded  to  the  public,  a  reduction  might  not  be  effected 
in  the  amount.  I  will,  however,  assume  it,  for  my  present 
purpose,  as  amounting  to  ;^icxd,ooo. 

A  sum  of  ^320,000  would  then  remain  as  the  profit  of 
the  circulation  department,  from  which  would  have  to  be 
further  deducted  the  amount  of  stamp  duty  paid  on  the 
notes  of  the  Bank  of  England,  being  about  ;^6o,ooo,  and 
the  sum,  whatever  it  may  be,  which  the  bank  now  allows 
to  those  banks  of  issue  which  have  substituted  Bank  of 
England  notes  for  their  own  paper,  and  which  I  assume, 
for  the  purpose  of  discussion,  as  about  ^^'20,000,  The  net 
profits,  therefore,  in  which  the  public  would  have  a  right 
to  share,  would  be  a  sum  of  ^^240,000,  or,  if  it  were  thought 
more  advisable  to  remove  the  stamp  duty  on  the  notes  of 
the  bank,  ;^300,ooo.  In  fixing  the  proportion  of  this 
amount  which  ought  to  be  paid  to  the  public,  I  do  not  on 
the  one  hand  put  out  of  view  the  fair  claim  of  the  bank  to 
compensation,  as  managers  on  behalf  of  the  public  of  the 
circulation  of  the  country  ;  but,  on  the  other  hand,  the 
bank  will  not  fail  to  bear  in  mind  that,  by  the  advance  of 
their  capitalof;i^i  1,000,000  to  the  public  at  3  percent.,  they 
have  hitherto  virtually  paid  to  the  public  a  sum  little 
short  of  one  per  cent,  on  that  amount ;  and  that  now, 
owing  to  the  present  circumstances  of  the  country,  that 
advance  is  no  longer  any  sacrifice  on  the  part  of  the  bank, 
nor  any  compensation  to  the  public  for  the  benefit  derived 
to  the  bank  from  its  connection  with  the  government.  It 
may,  therefore,  justly  become  a  question,  whether  that 
debt  of  the  public  to  the  bank  should  be  continued  at  its 
present  amount,  or  at  its  present  rate  of  interest. 


BANK    OF    ENGLAND.  277 

It  appears  to  me,  therefore,  that  in  claiming  for  the 
public  an  annual  payment  exceeding  that  now  made  by 
the  bank,  while  I  reserve  also  to  the  public  the  net  profit 
which  may  result  from  any  addition  hereafter  to  be  made 
to  the  amount  of  fixed  securities,  I  am  not  claiming  more 
than  the  bank  will  deem  a  just  compensation  for  the  ad- 
vantages secured  to  them. 

It  appears  to  me  that  the  real  interests  of  the  bank, 
taking  a  comprehensive  view  of  those  interests,  will  be 
materially  promoted  by  the  proposed  arrangement.  It 
proposes  to  leave  to  them  the  management  of  the  circula- 
tion; it  gives  a  new  and  decisive  proof  of  the  public 
confidence  reposed  in  them,  while  the  measure  itself  is 
calculated,  by  increasing  the  control  of  the  bank  over  the 
paper  currency  of  the  country,  to  secure  them  from  much 
expense  and  danger  to  which  they  have  hitherto  been 
exposed. 

I  have  the  honor  to  be, 

gentlemen. 
Your  very  faithful  and  obedient  servant, 
[Signed]  Henry  Goulburn. 

To    the    RigJit    Honorable ,   the   Chancellor   of   the   Ex- 
chequer, M.  P. 

Bank  of  England,  April  30,  1884. 

Sir: —  We  have  the  honor  to  acknowledge  the 
receipt  of  your  letter  of  the  26th  instant,  which  we  have 
submitted  to  the  consideration  of  the  Committee  of  Treas- 
ury and  of  the  Court  of  Directors,  and  we  are  desired  to 
assure  you  that  they,  in  common  with  ourselves,  are  duly 
impressed  with  the  importance  of  an  early  settlement  of 
the  question  affecting  the  circulation  of  the  country,  and 


2*78  HISTORY    OF    THE 

arc  satisfied  that  the  bank,  relinquishing  its  claim  to  the 
notice  prescribed  by  law,  will  give  its  most  favorable  con- 
sideration to  any  proposal  from  Her  Majesty's  Ministers 
having  for  its  object  to  place  the  circulation  of  the 
country  on  a  sounder  footing. 

To  the  "Entire  separation  of  the  business  of  Issue  of 
Notes  from  that  of  Banking,"  we  are  not  disposed  to  offer 
any  objection,  and  are  of  opinion  that  a  division  of  the 
bank  into  two  distinct  and  separate  departments  for  that 
object,  can  be  affected  without  difficulty ;  neither  do  we 
differ  respecting  the  principles  of  the  intended  measures 
detailed  in  your  letter. 

It  is  now  proposed  to  take  from  the  bank  all  the  future 
advantages  that  may  arise  from  the  substitution  of  its 
notes  for  the  present  issues  of  joint-stock  and  private 
banks.  We  are  prepared  to  admit  the  favorable  impres- 
sion which  the  public  opinion  will  receive  from  the  fact 
of  the  bank  having  no  pecuniary  interest  in  the  more  gen- 
eral adoption  of  its  notes.  It  must,  however,  be  recol- 
lected that  under  the  arrangement  of  1833,  by  which  it 
was  agreed  to  allow  to  the  public  ;^i 20,000  per  annum, 
very  considerable  advantages  were  held  out  to  the  bank 
from  the  extension  of  its  circulation  ;  these  were  never 
realized,  in  consequence  of  the  declared  inability  of  the 
government  to  carry  into  effect  the  measures  on  which 
that  speculation  was  founded. 

As  the  government  considers  that  "  A  weekly  publi- 
cation should  take  place  of  the  state  both  of  the  issue 
and  banking  departments  of  the  bank,  and  that  each  joint 
stock  and  private  bank,  issuing  its  own  paper,  should  make, 
once  a  week,  a  pubHcation  of  the  amount   of  its  notes  in 


3 


BANK    OF    ENGLAND.  279 

circulation,"  the  court  would  raise  no  objection  to  that  ar- 
rangement ;  but  we  would  suggest,  for  the  consideration 
of  the  government,  if  the  publication  of  the  banking  ac- 
counts can  be  regarded  as  essential  ? 

By  the  removal  of  "The  prohibition  now  in  force,  as 
to  the  drawing,  accepting,  or  paying  bills  within  the  sixty- 
five  mile  circle  around  London,"  the  bank  may  incur  some 
loss  in  its  banking  department  ;  but  more  serious  incon- 
venience will  result,  if  the  power  to  accept  should  be  ex- 
ercised for  the  purpose  of  circulation,  and  thus  interfere 
with  the  great  object  of  the  projected  measures  ;  a  ques- 
tion deserving  the  most  serious  consideration. 

On  the  subject  of  the  proposed  grant  of  the  bank 
charter  for  ten  years  from  the  ist  August,  1845,  subject 
at  the  end  of  that  period  to  terminate  upon  a  notice  of 
twelve  months,  but  until  such  notice  be  given  to  continue 
in  force  ;  we  would  suggest  as  a  preferable  plan,  that  if 
notice  shall  not  be  given  by  the  government  at  the  end 
of  ten  years,  the  charter  should  continue  until  after  the 
expiration  of  an  additional  period  of  ten  years.  It  seems 
to  us  that  sufficient  power  of  control  would  thus  be  re- 
tained by  the  government,  and  that  the  inconvenience  ar- 
ising from  repeated,  if  not  annual,  discussions  on  the  sub- 
ject, would  thus  be  avoided. 

The  possession  of  the  ^{J' 1 1 ,000,000  advanced  by  the 
bank  has  ever  been  considered  as  affording  additional  se- 
curity to  the  public,  and  contributing  to  that  entire  con- 
fidence at  all  times  placed  in  the  solidity  of  the  bank  ; 
and,  although,  at  an  interest  of  3  per  cent.,  the  loan  may 
not  at  this  moment  impose  any  pecuniary  sacrifice  on  the 
bank,  we  see  no  benefit  likely  to  arise  to  the  public  from 


280  HISTORY    OF    THE 

its  repayment.  We,  therefore,  think  it  for  the  public 
good  that  it  should  still  be  retained  ;  and  we  would,  at 
the  same  time,  remark  that  any  reduction  in  the  interest 
on  this  loan  will  necessarily  diminish  to  a  corresponding 
extent,  the  profit  in  the  issue  department  of  the  bank. 

Referring  to  the  estimate  of  the  profit  to  be  derived 
from  the  department  of  issue,  we  must  remark  that  we 
calculate  its  actual  expense  at  ^113,000  per  annum;  a 
large  outlay  being  incurred  for  the  sole  accommodation  of 
the  public  by  bank  notes,  not  being  reissued  in  London; 
by  the  complete  registration  of  the  issue  and  cancelment 
of  each  note;  by  the  preservation  of  the  cancelled  notes 
for  ten  years  for  the  purpose  of  legal  reference,  so  that 
each  note  can,  in  case  of  need,  be  traced,  and  frauds  thus 
be  detected;  and  finally,  by  the  ready  supply  of  notes  for 
bullion  or  coin,  besides  various  other  arrangements 
adopted  solely  for  the  public  convenience.  A  reissue  of 
notes  was  commenced,  as  a  measure  of  economy,  in  the 
year  1838,  but  so  much  inconvenience  was  experienced  by 
the  bankers  and  the  public,  that  it  was  abandoned;  and 
the  bank  now  issues  about  20,000  notes,  averaging  in 
amount  from  six  to  seven  hundred  thousand  pounds,  can- 
celling also  the  same  number  and  value,  daily. 

The  allowance  at  present  made  to  those  joint-stock 
and  private  banks  under  engagement  to  issue  only  Bank 
of  England  paper,  will,  at  one  per  cent.,  amount  to 
twenty-four  thousand  pounds,  as  appears  by  the  Parlia- 
mentary return  ;  and  we  submit  the  following  as  the 
correct  calculation,  viz.: — 


BANK    OF    ENGLAND.  281 

^i4,ocxD,cxDO  at  3  per  cent.       -        -         ^^420,000 

Deduct  the  expense     -     ^113,000 
Present  allowance  to  the  banks  and 

banking  companies  24,000         137,000 


;^283,ooo 
before  any  payment  is  made  to  the  government. 

In  reference  to  the  position  of  the  bank,  as  having  the 
management  of  the  public  debt  and  the  benefit  of  the 
government  deposits,  we  wish  to  state  that  the  advantage 
from  the  former  is  diminished  by  the  great  risk  of  forgery, 
and  from  the  latter  by  the  alteration  of  the  exchequer 
accounts  in  1834,  which  considerably  reduced  the  amount 
of  the  public  balances  ;  but,  in  reply  to  the  proposed 
understanding  that  the  government  will  retain  an  entire 
discretion  as  to  the  amount  of  such  deposits,  as  to  a  par- 
ticipation in  the  profits  arising  from  them,  if  they  should, 
from  any  circumstances,  be  materially  increased,  we  beg 
to  say  that  we  should  not  object  to  this,  provided  it  is 
conceded  by  the  government  that  an  allowance  will  be 
made  to  the  bank  if  the  balances  are  reduced  below  their 
present  amount. 

The  benefits  to  the  bank  will  also  be  further  reduced 
by  the  expenses  which  will  be  incurred  in  the  collection 
of  the  ordinary  revenue  ;  and,  in  reference  to  these,  it 
should  be  stated  that,  in  the  year  1843,  the  clerks  of  the 
bank  travelled  on  the  revenue  account,  75,090  miles,  Avith 
the  risk  attending  the  custody  and  transit  of  ;!^9,047,ooo, 
the  money  being  brought  immediately  to  the  credit  of  the 
government,  saving  to  the  public  a  considerable  amount 
of  interest  and  risk.     Taking  these  circumstances  into  con- 


282  HISTORY    OK    THE 

sidcration,  and  bearing  in  mind  that,  under  the  proposed 
arrangement,  the  bank  will  derive  no  advantage  from  the 
extension  of  its  circulation,  with  all  the  responsibility,  an 
abatement  from  the  i^  120,000  hitherto  allowed  to  the  pub- 
lic may  reasonably  be  expected  ;  for  if  the  bank  continue 
this  payment  to  the  government,  together  with  a  liability 
to  the  estimated  amount  of  the  stamp  duty  on  the  notes 
issued  on  the  fourteen  millions  of  securities,  viz.,  ;^49,ooo, 
making  a  total  of  ^169,000,  and  incur,  besides,  the  whole 
responsibility  of  the  extended  circulation  without  profit, 
the  court  is  of  opinion  that  it  will  be  called  upon  to  make 
a  larger  sacrifice  than  in  reason  and  justice  can  be 
required. 

We  have  the  honor  to  be. 

Sir, 
Your  very  faithful  and  obedient  servants, 
[Signed]  WILLIAM  COTTON,  Governor. 

J.  B.  Heath,  Deputy  Governor. 

To  the   Governor  and  Deputy  Governor  of  the  Bank  of 
England  : — 

Downing  Street,  May  2,  1844. 

Gentlemen — I  have  the  honor  to  acknowledge  the 
receipt  of  your  letter  of  the  30th  ultimo. 

It  is  satisfactory  to  Her  Majesty's  Government  to  learn 
that  there  is  on  the  part  of  the  Bank  of  England  a  general 
concurrence  in  the  principle  of  the  proposal  conveyed  in 
my  letter  of  the  27th  ultimo,  and  a  readiness  to  coope- 
rate in  giving  effect  to  them. 

They  observe  with  pleasure  that,  notwithstanding  the 
doubts  which  you  suggested  as  to  its  utility,  you  offer  no 
objection  to  a  weekly  publication  of  the  state  of  the  bank- 
ing as  well  as  of  the  issue  department. 


BANK    OF    ENGLAND. 


283 


That  measure  was  recommended  to  you  on  behalf  of 
the  government,  under  the  conviction  that  such  a  publica- 
tion would  be  advantageous  to  the  public,  and  would  carry 
with  it  the  strongest  evidence  of  the  stability  and  credit 
of  the  institution  over  which  your  preside,  and  upon  the 
same  grounds  it  still  appears  to  the  government  to  be  of 
essential  importance. 

I  agree  with  you  that  if  the  removal  of  the  existing 
prohibition   against  accepting  bills  within  the  sixty-five 
mile  circle  around  London  should  lead  to  the  introduction 
of  a  new  paper  circulation,  it  might  materially  interefcre 
with   the    object  of  the  proposed  arrangement.     An  at- 
tempt might  undoubtedly  be  made  now  to  guard  against 
such  an  evil  consequence,  by  imposing  generally,  and  in 
the  case  of  all  banking  establishments,  a  limit  upon  the 
sum  for  which  the  bills  to  be  accepted  might  be  drawn,  or 
by  extending  the  dates  at  which  they  might  become  pay- 
able.    But,  while  such  a  measure  might  fail  in  proving  an 
effective  check  upon  future  evasions,  it  is  calculated   to 
raise  impediments  in  the  way  of  legitimate  banking  busi- 
ness.    It  appears,  therefore,  more  advisable  to  trust  for  a 
remedy  for  so  serious  an  evil  to  the  power  of  the  govern- 
ment— a  power  which  will  not  fail  to  be  exercised  if  the 
abuse  should  arise — of  applying  by  new  legislative  enact- 
ment an  adequate  corrective. 

Her  Majesty's  Government  has  well  weighed  the 
reasons  which  you  have  urged  for  preferring  a  renewal  of 
the  charter  upon  the  terms  granted  in  1833,  nnmel}-,  for 
twenty  years,  with  the  power  of  terminating  it  at  a  notice 
given  at  the  expiration  of  ten. 

In  making  the  proposal  contained  in  my  letter  of  the 


284  HISTORY    or     THE 

27th  ultimo,  the  government  was  mainly  influenced  by 
the  consideration,  to  which  you  appear  also  to  attach 
much  weight,  that  it  was  not  advisable  unnecessarily  to 
agitate  questions  affecting  the  banking  interests  and  the 
currency  of  the  country. 

We  confidently  hope  that  the  arrangements  now  to 
be  made  will  be  found  at  the  end  of  ten  years  to  have 
satisfied  public  expectation,  and  in  that  case  there  would 
probably  be  a  disposition,  encouraged  by  the  knowledge 
that  the  subject  was  at  any  time  open  to  discussion,  to 
forbear  from  proposing  a  change  in  the  existing  system. 
But  on  the  other  hand,  if  the  opportunity  of  revision 
afforded  at  the  end  often  years  were  not  again  to  occur 
till  the  expiration  of  a  similiar  period,  the  necessity  of 
reviewing  what  was  otherwise  to  be  for  so  long  a  time 
irrevocable,  could  scarcely  be  denied. 

On  those  grounds  Her  Majesty's  Government  con- 
siders that  it  would  be  more  for  the  public  interests  that 
the  charter  should  be  continued  as  proposed  in  my  former 
letter. 

The  reasons  offered  by  you  for  the  retention  by  the 
public  of  the  ^11,000,000  advanced  by  the  bank,  are 
entitled  to  considerable  weight;  and  in  the  event  of  the 
acquiescence  of  the  bank  in  the  terms  proposed,  Her 
Majesty's  Government  is  prepared  to  consent  to  that 
debt  remaining  during  the  further  continuance  of  the 
charter  on  its  present  footing. 

With  respect  to  the  public  balances  in  the  hands  of 
the  bank,  I  deem  it  unnecessary  to  make  any  observation. 
The  government  must  necessarily  retain  an  unfettered 
discretion  as  to  the  amount  which  it  may  be  proper  to 


BANK   OF    ENGLAND.  285 

keep  in  the  bank,  and  in  the  event  of  any  extraordinary 
accumulation  beyond  the  usual  amount,  it  would  be  here- 
after, as  it  has  been  heretofore,  competent  to  them  to 
make  any  arrangement  with  the  bank  which  might  ap- 
pear to  them  conducive  to  the  public  interests. 

With  reference  to  the  expense  of  the  department  of 
issue,  I  readily  admit  the  importance  of  not  discontinuing 
any  one  of  the  facilities  which  the  bank  has  hitherto 
afforded  to  the  public,  although  necessarily  attended  with 
an  increase  of  charge.  Nor,  after  a  due  consideration  of 
the  detail  of  the  expenditure  of  ^113,000,  which  you  have 
assigned  to  the  issue  department,  am  I  prepared  to  state 
that  it  is  excessive. 

But  after  making  the  deductions  which  you  have 
specified,  the  profit  of  the  issue  department  still  amounts 
to  i;983,ooo. 

Under  these  circumstances,  I  cannot  feel  myself 
authorized  to  hold  out  to  the  bank  any  expectation  of  an 
abatement  from  the  sum  of  iJ"i 20,000,  which  they  now 
allow  to  the  public  ;  nor  can  I  admit  the  payment  of  ^^49,- 
000  to  be  an  adequate  compensation  for  the  sum  which 
would  accrue  to  the  public  from  leaving  the  Bank  of  Eng- 
land notes  still  subject  to  stamp  duty.  The  sum  latterly 
received  on  this  account  has  been,  as  I  previously  stated, 
;^6o,ooo.  I  should  certainly  have  preferred  the  continued 
payment  by  the  bank  of  duty  on  the  amount  of  notes  in 
circulation.  By  the  arrangement,  however,  which  I  have 
proposed,  the  public  will  henceforth  be  entitled  to  receive 
the  whole  net  profit  of  any  issue  of  notes  founded  on  any 
addition  to  the  fixed  amount  of  securities. 

The  stamp  duty  on  such  notes  would  necessarily  be  a 


286  HISTORY    OF   THE 

deduction  from  the  profit  for  which  the  bank  have  to 
account  ;  and  I  anticipate  considerable  difficulty,  in  the 
case  of  such  additional  issue,  of  ascertaining  the  precise 
proportion  of  such  issue  which  might  be  in  circulation,  and 
on  which  alone  the  duty  would  attach.  I  am,  therefore, 
prepared,  on  behalf  of  the  government,  to  accept,  as  com- 
pensation for  the  stamp  duty  a  sum  of  ^60,000. 

If,  therefore,  the  Bank  of  England  is  prepared  to 
make  a  fixed  annual  payment  to  the  public,  amounting  in 
the  whole  to  ;^  180,000,  subject  to  the  several  conditions 
which  I  have  in  this  and  in  my  former  letter  submitted  to 
you.  Her  Majesty's  Government  will  be  prepared  to 
recommend  to  Parliament  the  continuance  of  the  charter 
for  the  period  for  which  I  have  specified. 
I  have  the  honor  to  be, 

gentlemen, 
Your  most  obedient  servant, 

[Signed]  Henry  Goulburn. 

To    the    Right    Honorable,   the    Cha7tcellor   of   the  Ex- 
chequer:— 

Bank  of  England,  May  3, 1844, 
Sir: — We  have  the  honor  to  acknowedge  your  letter 
of  the  2d  inst.,  which  we  have  submitted  to  the  considera- 
ation  of  the  Court  of  Directors;  and  although  they  are 
still  of  the  opinion  that  some  abatement  from  the  ^120,000 
allowed  to  the  public  might  reasonably  have  been  ex- 
pected, they  have  resolved,  in  order  that  no  obstacle  may 
be  presented  by  them  to  the  measures  which  are  consid- 
ered desirable  by  Her  Majesty's  Ministers  to  place  the 


BANK    OF    ENGLAND.  "^^' 

currency  on  a  sounder  footing,  to  recommend  to  the  Court 
of  Proprietors  to  accede  to  the  proposals  of  the  govern- 

ment. 

We  have  the  honor  to  be, 

Sir, 
Your  very  faithful  and  obedient  servants, 
[Signed]  William  Cotton,  Governor. 

J.  B.  Heath,  Deputy  Governor. 


CHAPTER    XXIII. 


AMERICAN  AND  ENGLISH  BANKERS  ASSOCIATIONS. 

Constitution  of  the  American  Bankers'  Association — WJio 
are  Eligible  to  Membership — Its  Objects — How  Con- 
ducted—  The  English  Institute  of  Bankers — Its  Con- 
stitution— Facilities  Afforded  to  Members — Detailed 
Account  of  the  Maimer  of  Conducting  Business. 


DECLARATION. 

In  order  to  promote  the  general  welfare  and  useful- 
ness of  banks  and  banking  institutions,  and  to  secure  uni- 
formity of  action,  together  with  the  practical  benefits  to 
be  derived  from  personal  acquaintance  and  from  the 
discussion  of  subjects  of  importance  to  the  banking  and 
commercial  interests  of  the  country ;  and  especially  in 
order  to  secure  the  proper  consideration  of  questions  re- 
garding the  financial  and  commercial  usages,  customs  and 
laws  which  affect  the  banking  interests  of  the  entire 
country,  and  for  protection  against  loss  by  crime,  we  have 
to  submit  the  following  Constitution  and  By-Laws  for 
"  The  American  Bankers  Association  :" 


BANK    OF    ENGLAND,  289 

CONSTITUTION. 

Article  I. 

Section  r.  This  Association  shall  be  called  "  THE 
American  Bankers  Association." 

Article  II. 

Sec.  I.  Any  National  or  State  Bank,  Trust  Company, 
Savings  Bank  or  Banking  Firm  may  become  a  member  of 
this  Association  upon  the  payment  of  such  annual  dues 
as  shall  be  provided  by  the  by-laws,  and  may  send  one 
delegate  to  the  annual  meetings  of  the  Association  ;  and 
any  member  may  be  expelled  from  the  Association  upon 
a  vote  of  two-thirds  of  those  present  at  any  regular 
meeting. 

Sec.  2.  Delegates  shall  be  an  officer  or  director,  or 
trustee  of  the  institutions  they  represent,  or  a  member  of 
a  banking  firm,  or  an  individual  doing  business  as  a  bank. 

Sec.  3.  Delegates  shall  vote  in  person  ;  no  voting  by 
proxy  shall  be  allowed. 

Sec.  4.  All  votes  shall  be  viva  voce,  unless  otherwise 

ordered  ;  any    delegate   may    demand    a    division    of  the 

house. 

Article  III. 

Sec.  I.  The  administration  of  the  affairs  of  this  As- 
sociation shall  be  vested  in  the  President  and  V^icc-Presi- 
dent  of  this  Association,  and  one  Vice-President  for  each 
State  and  Territory  which  may  be  represented  in  this 
Association,  and  in  an  Executive  Council,  composed  of 
twenty-one  members  of  this  Association,  who  shall  be 
elected  at  the  annual  meetings,  and  who  shall  serve  until 
their  successors  are  chosen    or  appointed,  but    none   of 


290  HISTORY    OF    THE 

whom  shall  hereafter  be  eligible  for  election  to  the  same 
office  for  more  than  three  consecutive  years. 

Sec.  2.  The  vice-presidents  shall  have  the  supervision 
of  the  business  of  the  Association  in  the  States  and  Ter- 
ritories where  they  reside,  and  may  call  meetings  when 
they  may  deem  the  same  necessary ;  and  in  case  of 
absence  or  disability  of  the  president  or  first  vice-presi- 
dent of  the  Association  to  preside,  they  may  designate 
one  of  their  number  to  act  as  president  p7'o  tern.;  and 
said  president /^^  tein.  shall,  in  case  of  death  or  other  dis- 
ability of  the  president,  be  invested  with  all  the  power  of 
president  until  a  successor  shall  be  duly  elected  or  ap- 
pointed. 

Sec.  3.  The  executive  council  of  twenty-one  shall 
take  charge  of  the  general  business  of  the  Association, 
receive  communications,  arrange  for  holding  meetings, 
procure  and  arrange  subjects  for  discussion  in  the  order 
in  which  they  may  come  before  the  convention,  provide 
for  speakers,  and  carry  out  the  resolutions  passed.  They 
shall  also  act  as  a  financial  committee  for  raising  and  dis- 
bursing moneys.  The  attendance  of  five  members  of  the 
executive  council  shall  constitute  a  quorum  for  the  trans- 
action of  business. 

Sec.  4.  The  executive  council  of  twenty-one  may  ap- 
point and  discharge  the  secretary  and  treasurer,  or  other 
employees  of  the  Association,  at  their  discretion. 

Sec.  5.  Special  meetings  of  the  executive  council 
may  be  called  by  request  of  three  of  its  own  members, 
giving  two  weeks'  notice  to  the  secretary  desiring  him  to 
call  such  special  meeting.  The  council  shall  have  power 
to  fill  vacancies  that  may  occur  in  their  own  body. 


BAXK    OF    ENGLAND.  291 

Sec.  6.  The  executive  council  shall  provide —  ist,  for 
keeping  the  records  of  the  proceedings  of  their  own  meet- 
ings, as  well  as  that  of  the  Association's  annual  or  special 
meetings;  2d,  they  shall  submit  to  each  annual  meeting  a 
report,  covering  their  own  official  acts  as  well  as  a  state- 
ment of  any  new  or  unfinished  business  requiring 
attention  ;  3d,  they  shall  make  full  statements  of  the 
financial  condition  of  the  Association;  and  4th,  submit  an 
estimate  of  the  amount  required  to  carry  on  the  affairs  of 
the  Association  according  to  their  judgmemt  of  the  busi- 
ness to  be  done,  and  recommend  means  for  raising  money 
to  carry  out  such  plans  as  may  be  resolved  upon  by  the 
Association. 

Sec.  7.  The  secretary  shall  make  and  have  charge  of 
the  records  of  the  Association,  as  well  as  those  of  the 
council,  and  of  the  correspondence  of  the  executive 
council  and  standing  protective  committee,  and  shall 
promptly  send  to  each  member  of  the  Association  a 
synopsis  of  reports  received  by  him  of  attempted  or 
accomplished  crime  against  any  member  of  the  Associa- 
tion. Such  records  shall  be  the  property  of  this 
Association,  and  be  held  subject  at  all  times  to  the  order 
of  the  executive  council. 

Sec.  8.  The  treasurer  shall  receive  and  account  for 
all  moneys  belonging  to  the  Association,  and  collect  dues; 
but  shall  pay  out  moneys  only  upon  vouchers  counter- 
signed and  approved  by  the  president  of  the  Association, 
or  by  the  secretary  appointed  by  the  executive  council. 

Article  IY. 

Sec.  I.  The  executive  council  shall  appoint  a  Stand- 
ing Protective  Committee  of  three  persons,  whose  names 


292  HISTORY    OF   THE 

shall  not  be  made  public.  The  said  committee  shall  con- 
trol all  action  looking  to  the  detection,  prosecution  and 
punishment  of  persons  attempting  to  cause  or  causing 
loss,  by  crime,  to  any  member  of  the  Association. 

Sec.  2.  The  said  committee,  when  called  upon  for 
aid,  by  any  member  of  the  Association,  through  the  sec- 
retary, shall  forthwith  take  such  steps  as  it  shall  deem 
proper  to  arrest  and  prosecute  the  party  charged  with 
crime. 

Sec.  3.  The  said  committee  is  prohibited  from  com- 
promising or  compounding  with  parties  charged  with 
crime,  or  with  their  agents  or  attorneys. 

Sec.  4.  All  detective  and  legal  expenses  and  costs 
shall  be  paid  by  the  Association  out  of  any  moneys  in 
the  treasury  not  otherwise  appropriated  ;  subject,  how- 
ever, to  the  approval  of  a  quorum  of  the  executive 
council. 

Sec.  5.  All  members  of  the  Association,  when  called 
upon  by  the  secretary  in  behaf  of  the  protective  com- 
mittee for  information  or  aid,  shall  promptly  respond  by 
giving  all  assistance  in  their  power  ;  and  all  members 
shall,  at  all  times,  notify  the  secretary,  who  shall  promptly 
notify  the  committee,  of  any  attempted  or  accomplished 
crime  reported  to  him  as  likely  to  affect  other  members  of 

the  Association. 

Article  V. 

Sec.  I.  Annual  meetings  of  the  Association  shall  be 
held  at  such  times  and  places  as  shall  be  determined  by 
the  executive  council.  Special  meetings  may  be  called 
by  the  council  if,  in  their  opinion,  circumstances  require 
them,  giving  two  weeks'  notice  of  the  time  and   place  of 


BANK    OF    r:NGLAND.  293 

meeting,  together  with  the  subject  matter  of  business  to 
come  before  such  special  meeting.  The  executive  coun- 
cil shall  meet  to  arrange  the  order  of  business  on  the  day- 
preceding  meeting  of  Association. 

Artici.k  VI. 
* 
Sec.  I.  The     expenses     of    the     executive      council 

of  the  Association,  in  carrying  out  the  business  to 
be  done  by  them,  shall  be  provided  for  by  the  annual 
dues  of  the  members  of  the  Association  ;  provided, 
however,  that  the  executive  council  shall  have  no  au- 
thority to  incur  or  contract  on  behalf  of  this  Association 
any  liability  whatever  beyond  the  annual  dues  hereby  au- 
thorized, and  only  that  for  the  purposes  hereby  designated. 

Article   VII. 

Sec.  I.  Resolutions  or  subjects  for  discussion  (except 
those  referring  to  points  of  order  or  matters  of  courtesy) 
must  be  submitted  to  the  executive  council  in  writing 
at  least  tliii'ty  days  before  any  general  meeting  of  the 
Association  ;  but  any  person  desiring  to  submit  any  reso- 
lution or  business  in  open  convention  can  do  so  upon  a 
two-thirds  vote  of  the  delegates  present,  referring  the 
resolution  to  the  executive  council  or  committee  on 
resolutions  to  report  upon  immediately. 

Article   VIII. 

Any  one  failing  to  pay  within  three  months  the 
annual  dues  for  carrying  on  the  business  of  the  ^Vssocia- 
tion,  shall  be  considered  as  having  withdrawn  from  mem- 
bership, but  may  be  reinstated  upon  application  to  the 
treasurer,  and  paying  all  dues  in  arrears,  with  consent  of 
the  president. 


294  IIISIOKY    OF    THE 

Artici.k  IX. 

This  constitution  may  be  altered  or  amended  at  any 
annual  meeting  by  a  vote  of  two-thirds  of  the  members 
present,  notice  of  the  proposed  amendment  having  been 
first  submitted  to  the  secretary  at  least  thirty  days  before 
the  annual  meeting,  to  be  placed  by  him  before  the  execu- 
tive council,  that  they  may  arrange  for  bringing  it  before 
the  convention  under  the  regular  order  of  business. 

BY-LAWS 

OF   THE   AMERICAN    BANKERS   ASSOCIATION. 

The  annual  dues  to  the  Association  shall  be  consid- 
ered due  at  the  beginning  of  the  year,  which  year  shall 
commence  with  the  regular  annual  meeting,  it  being 
understood  that  absent  members  from  such  annual  meet- 
ing shall  not  forfeit  their  membership  nor  the  right  to 
become  members,  provided  they  comply  with  the  consti- 
tution and  by-laws,  and  remit  the  amount  of  the  dues  to 
the  treasurer  within  three  months  after  such  annual  meet- 
ing. 

The  annual  dues  of  all  banks  and  trust  companies 
having  less  than  $ido,ooo  capital,  and  of  all  private  bank- 
ers, regardless  of  the  amount  of  capital,  shall  be  $5,  and  of 
all  banks  and  trust  companies  having  a  capital  of  $100,000 
and  upwards,  $10. 


BANK    OF    ENGLAND.  295 


CONSTITUTION 

OF   THE 

Institute  of  Bankers. 


1.  The  name  of  the  Institue  is  "The  Institute  of 
Bankers."     (Was  founded  in  London  in  1879.) 

2.  The  Institute  is  an  association  of  gentlemen  con- 
nected with  the  various  branches  of  banking.  Its  primary- 
object  is  to  facilitate  the  consideration  and  discussion  of 
matters  of  interest  to  the  profession,  and,  where  advisable, 
to  take  measures  to  further  the  decisions  arrived  at ;  and 
its  secondary  object  is  to  afford  opportunities  for  the 
acquisition  of  a  knowledge  of  the  theory  of  banking. 

3.  The  Institute  shall  afford  facilities  for  the  read- 
ing, discussion,  and  publication  of  approved  papers  by 
members  and  others ;  shall,  when  desirable,  recognize 
and  arrange  for  the  delivery  of  lectures  on  banking,  mer- 
cantile law,  political  economy,  and  other  kindred  sub- 
jects ;  shall  issue  certificates  to  those  who  may  pass 
examinations  approved  of  from  time  to  time  by  the 
council  of  the  Institute;  and  shall  found  a  library,  con- 
sisting of  works  on  banking,  commerce,  finance,  and 
political  economy. 

4.  If  the  council  shall  at  any  time,  or  from  time  to 
time,  think  it  desirable  to  acquire  for  the  purposes  of  the 
Institute  the  whole  or  part  of  any  building  or  buildings, 
they  shall  have  power  to  purchase  or  lease  the  same  upon 


296  HISTORV    Ol-'   THE 

such  terms  as  they  shall  think  fit,  and  they  shall  also  have 
power  from  time  to  time  to  sell  or  surrender  any  premises 
which,  in  their  judgment,  are  no  longer  required  for  such 
objects. 

5.  The  members  of  the  Institute  are  Fellows,  Asso- 
ciates, and  Ordinary  Members:  — 

Fellows  shall  be  elected  by  the  council.  Each  appli- 
cant for  admission  as  a  fellow  shall  be  nominated  by  two 
or  more  fellows,  who  shall  certify  in  writing  that  the  can- 
didate is  a  fit  person  to  be  elected  a  Fellow  of  the 
Institute  of  Bankers. 

The  council  shall  have  power  to  elect  as  honorary 
fellows  men  of  distinction  in  the  practice  or  literature  of 
banking,  mercantile  law,  political  economy,  or  other  kind- 
red subjects. 

Associates  shall  in  future  be  elected  by  the  council 
from  those  "v\ho  have  been  not  less  than  ten  years  in  the 
service  of  any  bank;  or  from  those  who  have  passed  the 
examination  instituted  or  recognized  by  the  council,  or 
from  those  who,  being  on  the  staff  of  a  bank,  are  gradu- 
ates of  any  university.  Each  applicant  for  admission  as 
an  associate  shall  in  every  case  be  proposed  by  two  fel- 
lows of  the  Institute,  who  shall  certify  in  writing  that  the 
candidate  is  a  fit  person  to  be  elected  an  Associate  of  the 
Institute  of  Bankers. 

Ordinary  Members— clerks  on  the  staff  of  any  bank- 
ing establishment,  and  who  shall  be  approved  by  the 
council. 

6.  Associate  and  ordinary  members,  as  well  as  fel- 
lows, shall  have  the  right  to  be  present  at  the  various 
meetings  of  the  Institute;  but  in  any  case  when  any  election 


BANK    OF    l-.NGLAND.  L'UT 

IS  to  be  made,  or  the  opinion  or  decision  of  the  Institute 
is  to  be  taken  on  any  subject  or  question  by  vote,  at  any 
meeting,  ordinary  or  special,  the  fellows  and  associates 
of  the  Institute  shall,  except  where  otherwise  specially 
provided  by  the  constitution,  alone  be  entitled  to  vote. 

.7.  The  control  of  the  Institute  shall  be  vested  in  the 
president,  vice-presidents,  treasurer,  and  council  for  the 
time  being. 

8.  The  president,  vice-presidents,  and  treasurer 
shall  cx-officio  be  members  of  the  council.  They  shall  be 
elected  each  year,  at  the  annual  general  meeting,  from 
among  the  fellows  of  the  Institute.  Each  shall  be  eligi- 
ble for  re-election,  and  shall  hold  office  until  his  suc- 
cessor is  appointed. 

The  council  shall  be  not  more  than  twenty-four  in 
number,  exclusive  of  the  president,  vice-presidents,  and 
treasurer.  At  each  annual  general  meeting  six  mem- 
bers of  the  council  shall  retire  from  office.  The  order  of 
retirement  shall  be  determined  by  the  council.  Each 
shall  be  eligible  for  re-election.  At  each  annual  general 
meeting,  a  sufficient  number  of  members  of  council  shall 
be  elected  from  among  the  fellows  to  supply  the  places 
of  those  retiring. 

The  notice  convening  the  annual  general  meeting 
shall  state  the  names  of  those  recommended  by  the  coun- 
cil for  election  as  president,  vice-presidents,  treasurer, 
and  as  members  of  council  to  supply  the  places  of  those 
retiring. 

9.  On  any  extraordinary  vacancy  of  the  office  of  the 
president,  or  any  officer  other  than  trustee  of  the  Insti- 
tute, or  in  the  council,  a  meeting  of  the  council  shall  be 


298  HISTORY    OF    THE 

summoned  with  as  little  delay  as  possible,  and  shall  choose 
a  new  president  or  other  officer  of  the  Institute,  or  mem- 
ber of  the  council,  as  the  case  may  be,  to  hold  office  until 
the  next  annual  general  meeting. 

10.  Auditors — At  the  annual  general  meeting  in 
each  year,  two  fellows  of  the  Institute,  not  being  members 
of  the  council,  shall  be  elected  to  act  as  auditors  for  the 
ensuing  year. 

The  auditors  shall  hold  office  until  the  next  annual 
general  meeting,  and  shall  be  eligible  for  re-election. 

1 1.  Trustees — The  property  of  the  Institute  shall  be 
vested  in  three  trustees,  and  a  resolution  of  the  council 
shall,  in  all  cases,  be  a  sufficient  authority  and  protection 
to  the  trustees  for  and  in  respect  of  any  conveyance, 
transfer,  payment,  or  other  act  thereby  directed.  Each 
trustee,  whether  already  appointed  or  to  be  appointed, 
shall  hold  such  office  until  his  death,  resignation  or 
removal. 

Any  trustee  may  retire  from  office  on  giving  a  writ- 
ten notice,  addressed  to  the  council,  of  his  desire  so  to  do. 
Any  trustee  may  be  removed,  at  a  special  general  meet- 
ing, if  it  shall  be  determined  at  the  meeting  that  sufficient 
cause  exists  for  such  removal,  and  any  vacancy  in  the 
office  of  trustee  may  be  supplied  from  among  the  fellows 
at  the  same  or  any  other  special  general  meeting. 

12.  The  council  shall  appoint  two  or  more  of  their 
number  to  be  honorary  secretaries,  and  engage  such  paid 
officers  as  they  from  time  to  time  deem  necessary. 

13.  The  council  shall  meet  once  a  month,  or  oftener, 
as  may  be  requisite.     Five  members  to  be  a  quorum. 

14.  The  council  may,  from  time  to  time,  issue  a  jour- 


HANK    OF    KNGLAND.  299 

nal  or  such  other  publication  as  they  may  think  desirable, 
and  for  this  purpose  appoint  one  of  their  members  to  be 
honorary  editor,  and  engage  such  paid  assistance,  and 
apply  in  paying  the  expenses  of  the  journal  such  part  of 
the  funds  of  the  Institute  as  in  their  judgment  may  be 
necessary. 

15.  The  subscriptions  to  the  Institute  shall  be  two 
guineas  for  fellows,  one  guinea  for  associates,  and  ten 
shillings  and  sixpence  for  ordinary  members,  payable 
annually,  in  advance,  on  the  ist  of  January  in  each  year, 
which  may  be  compounded  for  by  payment,  at  any  one 
time,  of  twenty  guineas  for  fellows  and  ten  guineas  for 
associates.  One  year's  subscription  shall  be  payable  on 
admission,  unless  the  date  of  admission  be  later  than  the 
30th  of  June,  when  only  a  half  year's  subscription  shall  be 
so  payable. 

16.  Any  fellow,  associate,  or  ordinary  member  who 
shall  not  have  paid  his  subscription  before  the  ist  of 
March  in  any  year,  may  be  declared  a  defaulter  by  the 
council,  whereupon  he  shall  cease  to  be  a  member  of  the 
Institute. 

17.  Any  fellow,  associate,  or  ordinary  member  may 
resign,  on  giving  notice  of  his  intention,  in  writing,  to  the 
council  ;  but  no  one  can  withdraw  his  name  from  the 
books  of  the  Institute  unless  his  subscription  shall  have 
been  paid  for  the  year  in  which  the  notice  of  his  resigna- 
tion is  received. 

18.  A  majority  of  not  less  than  three-fourths  of  the 
council  present  at  a  meeting,  special  notice  having  been 
given  for  that  purpose,  may  remove  from  the  books  of  the 
Institute   the  name  of  any  fellow,  associate,  or   ordinary 


300  HISTORY    OK    THE 

member,  who,  in  their  judgment,  shall  have  been  guilty 
of  any  act  derogatory  to  his  character,  reputation,  and  cal- 
culated to  bring  discredit  on  the  Institute,  and  he  shall 
thereupon  cease  to  be  a  member  of  the  Institute. 

19.  The  ordinary  general  meeting  of  the  Institute 
shall  be  monthly  or  oftener  during  the  session,  which  shall 
be  from  October  to  May,  both  inclusive,  on  such  days  and  at 
such  hours  as  the  council  shall  declare.  The  council 
may,  when  it  appears  to  be  necessary,  and  shall,  on  the 
written  requisition  of  not  less  than  fifty  members  of  the 
Institute,  of  whom  not  less  than  fifteen  shall  be  fellows, 
call  a  special  general  meeting  of  the  Institute. 

20.  A  general  meeting  of  fellows,  associates,  and 
ordinary  members  shall  be  held  once  in  every  year,  at 
such  time  as  the  council  may  determine,  to  receive  the 
report  of-  the  council  and  the  treasurer's  accounts,  to 
elect  the  officers  of  the  Institute,  and  to  decide  questions 
concerning  its  rules  and  management. 

21.  All  elections,  whether  by  the  council,  or  other- 
wise, shall  be  by  ballot,  and,  except  where  the  constitution 
shall  otherwise  provide,  all  elections  and  all  questions 
shall  be  determined  by  a  majority  of  votes. 

22.  A  majority  of  the  fellows,  associates,  and  mem- 
bers present  at  a  special  general  meeting  shall  have  power 
to  make,  from  time  to  time,  any  alterations  in  the  consti- 
tution, not  inconsistent  with  its  main  object,  but  no 
alteration  shall  be  made  without  notice  of  the  proposed 
alteration  having  been  given  in  the  notice  convening  the 
meeting,  nor  until  the  minutes  of  such  meeting  have  been 
confirmed  at  a  subsequent  general  meeting,  ordinary  or 
special,  at  which  subsequent  meeting  ordinary  members. 


BANK    OK    ENGLAND.  301 

as  well  as  fellows  and  associates,  shall  have  the  ric^dit  to 
vote. 

23.  All  notices  of  general  meetings  shall  be  either 
delivered  at,  or  sent  by  post  to,  the  last  known  place  of 
business  of  each  member  of  the  Institute  ten  days  at  least 
before  the  day  of  the  meeting.  Every  notice  of  a  special 
general  meeting  shall  specify  the  object  with  which  such 
meeting  is  convened. 

24.  The  council  may,  from  time  to  time,  make  such 
by-laws,  not  inconsistent  \\ith  this  constitution,  as  in 
their  judgment  may  be  necessary  or  desirable  in  the 
interests  of  the  Institute. 

25.  All  persons,  admitted  either  as  fellows,  asso- 
ciates, or  ordinary  members,  shall,  upon  their  admissions, 
sign  a  declaration  (in  the  form  annexed)  to  observe  the 
rules,  regulations,  and  by-laws  of  the  Institute  for  the 
time  being  in  force. 

DECLARATION  OF  MEMBERSHIP. 

I  do  hereby  declare  that  I  will  endeavor  to  further  the 
good  of  the  Institute  of  Bankers  and  the  ends  for  which 
the  same  has  been  founded,  and  that  I  will  keep  and  fulfill 
the  rules  and  orders  of  the  Institute,  provided  that 
whensoever  I  shall  make  known  in  writing  under  m}' 
hand,  to  the  Council  for  the  time  being,  that  I  desire  to 
withdraw  from  the  Institute,  I  shall  be  free  thenceforward 
from  this  obligation. 


i 


I 


UNIVERSITY  OF  CALIFORNIA  AT  LOS  ANGELES 

THE  UNIVERSITY  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below 


JUN  t 1  S4P 


^M  2  9  1952 


RECEIVED 

"main  LOAN  DESK 


AM 


P.M. 


I   7l8t9IIOiU|<»'»|g|3l4lS|6 


4     I  **^ 


Form  L-9 
a)m-l,'<2()>oiii) 


'^       -t* 


;-...::->JTY  OF  CALIF. 
AT 
LOS  ANGELES 


S  3  1158  01 144  2380 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    001  153  374    2 


^ 


•*V 


c^-^' 


^ 


'^J:, 


\ 


'  '  ■     . . V" 


4  f»i,  "•<  •#    ?gi| 


y, 


•    hit!'* 


"  >  I        '      J  *^  ill 


•:''?('/ 


.;,.  •:( '' 


w^  i<l 


